WORKS & CONTRACTS

Sl No Subject Authority Letter/ O.M/Clr No Date Page

CONTRACT MATTERS

1.1 Contract Matters - Simplification And Economising in the Contract Procedure

CVC, CTE 9Q-9-CTE-7 4-Jul-88 1

1.2 Contract Matters CVC, CTE 9Q-9-CTE-7 5-Jun-91 2

1.3 The Contracting Systems in Public Sector Undertakings

CVC 98/MST/001 26-Mar-98

3

1.4 Formulation of Force Majeure Clause as Vetted by Ministry of Law

HAL (SYA) SYA/GENL/99-00/ 009/241 19-May-00

3

1.5 Incorporation of Force Majeure Clause in Contracts

MOD 34(9)/2000/D(GS-IV) 18-Jul-01

4

1.6 SCOPEs Fourm of Conciliation & Arbitration(SFCA)

Coy Sec HAL

CO/SEC/14(18)/2004 16-Mar-04

5

SERVICE CONTRACTS

2.1 Engagement of Casual Labour/Term Contract Labour/Service Contract Labour –Review

HAL (P&A) HAL/P&A/20(18)-3/PF/96/1266 17-

Nov-97 5

2.2 Engagement of Casual Labour/Term Contract Labour, etc

HAL (P&A) HAL/P&A/20(18)-3/PF/99 24-

Mar-99 7

2.3 Guidelines on Service/Term Contracts and their Extension

HAL (VIG) HAL/CO/VIG/47/ 2001/465 12-

Apr-01 8

2.4 Codification of Service Contracts Awarded by HAL

VIG DEPT HAL/CO/VIG/47/ 2001/690 4-Jun-

01 14

SUB-CONTRACTING

3.1 Long Term Business Agreements Dir (Fin) CD/440/ZB-6/97/582 19-Nov-97

16

3.2 Guidelines for Indigenisation & Sub-Contracting HAL (IMM) HAL/CD/617/99/ 1183

24-May-

99 17

3.3 Long Term Business Agreements Dir (Fin) HAL/CD/617/2002 3-Oct-

02 18

3.4 Long Term Business Agreements Dir (Fin) HAL/CD/617/2006 4-Jul-

06 19

3.5 Procedure for sub-contracting of Tooling and Components

HAL (IMM) HAL/CD/552(1)/ 2007 14-

Feb-07 19

TENDERING

NOTICE INVITING TENDERS

4.1 Anti-Corruption Work - Tender Enquiries HAL (IMM) CD/616(F)/2000/1397 28-

Feb-00 29

4.2 Notice inviting tenders CVC, CTE OFF-1-CTE-1(Pt) V (Off Ord No.15/3/05)

24-Mar-05

29

4.3 Consideration of the quotations received against RFQ

HAL [DF] DE/100-28/08/212 9-Jun-

08 30

4.4 Irregularities noticed by CTE during Inviting and Opening Tenders

HAL (VIG) HAL/CO/VIG/47/ 2008 19-

Mar-08 31

4.5 Acceptance of Quotations through Fax/ E-Mail Etc

HAL (IMM) HAL/CD/616(F)/ 2008 10-

Nov-08 32

CONSULTANTS

5.1 Appointment of Consultants CVC, CTE 3L PRC 1 10-

Jan-83 35

5.2 Appointment of Consultant CVC, CTE OFF-1-CTE-1 25-

Nov-02 36

5.3 Participation of Consultants in Tender- Guidelines Regarding CVC

98/DSP/3 Dt 24th (Off Ord No-.75/12/04)

24-Dec-04 38

MOBILIZATION ADVANCE

6.1 Mobilization Advance CVC, CTE 4CC-1-CTE-2 (Off Ord NO.40/06/04)

8-Jun-04

39

6.2 Mobilization Advance CVC, CTE 4CC-1-CTE-2 10-

Apr-07 39

6.3 Mobilization Advance CVC, Dy.

Secy 4CC-1-CTE-2

5-Feb-08

40

GUIDELINES ON TENDERING SYSTEM

7.1 Prequalification Criteria (PQ) CVC, CTE 12-02-1-CTE-6 17-

Dec-02 41

7.2 Tender Sample Clause CVC, CTE 2EE-1-CTE-3 15-

Oct-03 43

7.3 Back to Back Tie up by PSUs- Instructions regarding CVC, CTE 06-03-02-CTE-34

20-Oct-03 43

7.4 Pre-qualification Criteria (PQ) CVC, CTE 12-02-1-CTE-6 7-May-

04 45

7.5 Transparency in tendering system- Guidelines regarding

CVC 004/ORD/9 (Off Ord No. 72/12/04)

10-Dec-04

45

7.6 EMD Circular No 32 DIR, FIN HAL/CD/617/2005; 22-

Mar-06 45

7.7

Providing a level Playing Field between Indian Industry vis-à-vis Foreign Suppliers in the area of Defence Procurement

HAL (IMM) HAL/CD/617/2005 5-Dec-

06 47

7.8 Use of Products with Standard Specification

CVC 98-VGL-25 14-

Apr-07 47

7.9 Price/Purchase Preference DPE DPE/13(15)/ 2007- Fin

21-Nov-07

48

7.10 Acceptance of Bank Guarantee Dir (Fin) FIN/C-12/BG/07-08/62 8-Feb-

08 49

7.11 Acceptance of Bank Guarantee CVC, CTE 02-07-01-CTE-30 31-

Dec-08 50

7.12 Preferential Purchase Policies (PPP) for Products and Services of CPSUs CVC, CTE 01-02-01-CTE-03

24-Aug-09 51

INTEGRITY PACT

8.1 Adoption of Integrity Pact in Major Government Procurement Activities

CVC 007/VGL/033 (Off Ord No.41/12/07)

4-Dec-07

51

8.2 Adoption of Integrity Pact in Major Government Procurement Activities

CVC 007/VGL/033 (Off Ord No.43/12/07)

28-Dec-07

56

8.3 Adoption of Integrity Pact in Major Government Procurement Activities

CVC 008/VGL/001 (Cir No.18/05/08) 19-

May-08

56

8.4 Adoption of Integrity Pact in Major Government procurement activities CVC 007/VGL/033( Cir No.24/8/08)

5-Aug-08 57

8.5 Integrity Pact HAL HAL/CD/617/2008 4-Nov-

08 58

8.6 Implementation of Integrity Pact HAL HAL/CD/617/2008 6-Jan-

09 58

8.7 Adoption of Integrity Pact-Standard CVC 008/CRD/013 (Cir No. 10/5/09) 18- 59

Operating Procedure-reg May-09

HANDLING OF TENDERS

9.1 Rejection of Conditional Tenders/Quotes Contrary to HAL Terms and Conditions

HAL (VIG) HAL/CO/VIG/47/134/2000 19-

Feb-00 62

9.2 Tenders - Freak Rates and Corrections/Insertions/ Over-Writings in Documents of Negotiations

HAL (VIG) HAL/CO/VIG/64/2001/388 22-

Mar-01 62

9.3 Acceptance of Late/Delayed Tenders HAL (IMM) HAL/CD/617/2003 3-Jul-

03 64

9.4 Receipt and Opening of Tenders CVC, CTE 05-04-1-CTE-8 8-Jun-

04 64

9.5 Undertaking by the Members of Tender Committee/Agency

CVC 005/VGL/66 (Off Ord No.71/12/05)

9-Dec-05

65

9.6 Participation in Approval Process Dir (Fin) HAL/CD/617/2006 20-

May-06

65

TENDER NEGOTIATIONS

10.1 Improving Vigilance Administration -Tenders

CVC 98/ORD/1 15-

Mar-99 65

10.2 Improving Vigilance Administration - Tenders

CVC No 98/ORD/1 24-

Aug-00 66

10.3 Improving Vigilance Administration - Tenders

CVC No 98/ORD/1 3-Aug-

01 66

10.4 Tendering Process- Negotiation with L1 CVC 005/CRD/12 (Off Ord No.68/10/05)

25-Oct-05

67

10.5 Tendering Process- Negotiation with L1 CVC 005/CRD/12 (Cir No. 37/10/06) 3-Oct-

06 67

10.6 Tendering Process- Negotiation with L1 CVC 005/CRD/012 (Cir No. 4/3/07) 3-Mar-

07 68

USE OF WEBSITE

11.1 Improving Vigilance Administration: Increasing Transparency in Procurement / Sale

CVC 98/ORD/1 18-

Dec-03 69

11.2 Improving Vigilance Administration: Increasing Transparency in Procurement / Sale

CVC 98/ORD/1 (Off Ord No. 912/04) 9-Feb-

04 70

11.3

Improving Vigilance Administration -Increasing Transparency in Procurement/Tender Process -Use of Website- Regarding

CVC 98/ORD/1 (Off Ord No.1012104)

11-Feb-04 70

11.4

Improving VigilanceAdministration: Increasing Transparency and Cutting Delays by E-Paymentsand E-Receipt by Govt. Organizations Etc

CVC 98/ORD/01 6-Apr-

04 70

11.5

Improving Vigilance Administration: Increasing Transparency in Procurement/Sale etc. -Use of Website Regarding

CVC 98/0RD/1 (Off Ord No.43/7/04) 2-Jul-

04 72

11.6 Improving Vigilance Administration : IncreasingTransparency in Procurement / Sale Etc-Use of Web Site Regarding

CVC 98/ORD/1 5-Jul-

04 74

11.7 Central Vigilance Commission's Directives on Use of Website in Public Tenders

CVC 98/ORD/1 (Off Ord No. 47/7104)

13-Jul-04 75

11.8

Improving Vigilance Administratin: Increasing Transparency in Procurement / Sale Etc. – Use of Web Site for Tenders Containing Classified / Secret Documentation.

CVC 005/VGL/7 28-

Feb-05 75

11.9 Details on Award of Tenders/Contracts Publishing on Websites/Bulletins

CVC, CTE 005/VGL/4 16-Mar-05

76

11.10 Details on Award of Tenders/Contracts Publishing on Websites/Bulletins

CVC, CTE 005/VGL/4 28-Jul-

05 77

11.11 Details on Award of Tenders/Contracts Publishing on Websites/Bulletins

CVC, CTE 005/VGL/4 20-

Sep-05 77

11.12 Payment to Vendors /Contractors through Electronic Clearance System [ECS]

GM, FIN FIN/C-12/BANKS/05-06 15-

Mar-06 77

11.13 Bank Charges On PaymentsTo Vendors GM, FIN FIN/C-12/BANKS/05-06 15-

Mar-06 79

11.14 Posting of details on Award of Tenders/ Contracts on Websites/ Bulletins

CVC 005/VGL/4 (Cir No. 31/9/06) 1-Sep-

06 80

11.15

Improving Vigilance Administration by Leveraging Technology: Increasing Transparency through Effective Use of Websites in Discharge of Regulatory, Enforcement and Other Functions of Govt. Organizations

CVC 006/VGL/117 (Cir No.40/11/06) 22-

Nov-06 80

11.16 Details on Award of Tenders / Contracts Publishing on Website / Bulletins

HAL HAL/CD/616(F)2006 6-Dec-

06 84

11.17

Improving Vigilance Administration by Leveraging Technology: Increasing Transparency through Effective of Website.

CVC 006/VGL/117 18-

Apr-07 84

11.18 Implementation of E-Tendering Solutions CVC 009/VGL/002 Off Ord No 1/1/09)

13-Jan-09

85

11.19 Posting of details on Award of Tenders/ Contracts on Websites

CVC 005/VGL/4 14-Jul-

09 85

11.20 Implementation of e-tendering solutions CVC 29/9/09 17-

Sep-09 86

PROCESSING OF PROCUREMENT

12.1 Time Bound Processing of Procurement CVC 008NGLl083 (Cir No.31/11/08)

6-Nov-08

86

12.2 Time Bound Processing of Procurement HAL HAL/CD/617/2008 5-Dec-

08 87

AWARD OF CONTRACT ON NOMINATION BASIS

13.1 Transparency in Works/Purchase/Consultancy Contracts Awarded on Nomination Basis.

CVC 005/CRD/19 ( CIR No.15/5/06) 9-May-

06 87

13.2 Transparency in Works/Purchase/Consultancy Contracts Awarded on Nomination Basis.

CVC 005/CRD/19 (Off Ord No.23/7/07)

5-Jul-07

87

DELAY IN PAYMENT TO VENDORS

14.1

Improving Vigilance Administration: Increasing Transparency and Cutting Delays by E-Payments and E-Receipt by Govt. Organisations etc

CVC 98/ORD/1 (Off Ord No. 20/4/04)

6-Apr-04

89

14.2 Delays in Payments to Contractors & CVC 005/ORD/1 (Off Ord 10- 90

Suppliers etc. – Reducing Opportunities for Corruption.

NO.11/3/05) Mar-05

COMMON IRREGULARITIIES

15.1 Common Irregularities in the Award of Contracts

CVC, CTE OFF-1-CTE-1 (Off Mem No- 8/2/04)

5-Feb-04

91

15.2 Examination of Public Procurement (Works/Purchases/ Services) Contracts by CVOs.

CVC 006/VGL/29 (Cir No.21/05/06) 1-May-

06 93

REPORTS & RETURNS

16.1 Intensive Examination of Supplies of Engineering Materials to Central Government Organisations

CVC 1K VGL 1 14-

Mar-86 97

16.2 Examination of Works by CTE’s Organisation in CVC - Role of CVOs Vis-a-Vis CTEs

CVC 7R ORD 37 19-

Aug-87 98

16.3

Examination of Works by the CTE’s Organisation - Raising the Monetary Limit for Reporting the Works in Progress to the Chief Technical Examiners

CVC 9U -ORD-51 24-

Sep-90 100

16.4

Examination of Works by CTE’s Organisation - Raising the Monetary Limit for Reporting the Works in Progress to the CTE

CVC 98-VGL-25 18-

Nov-98 102

16.5 Examination of Stores/Purchase Contracts by the CTE’s Org

CVC No 98-VGL-25(i) 12-

Mar-99 102

16.6 Examination of Works by CTE’s Organisation for Reporting the Works in Progress to the CTE’s Organisation

CVC 98-VGL-25 20-Jul-

01 103

16.7 Intensive Examination of Works – Regarding

CVC, CTE OFF-1-CTE-2 22-

Oct-02 103

16.8 Intensive Examination of Works by CTE’s Organisation – Submission of Quarterly Progress Report

CVC 98-VGL-25 11-

Nov-05 104

16.9

Submission of Quarterly Progress Report in Respect of Civil Work Contracts, Electrical / Mechanical & Engineering Contracts, Store & Purchase Contracts, Horticulture Contracts, Purchase of Medical Equipments, Consultancy Contracts, Service Contracts and Supplies of Medicines.

HAL (VIG) HAL/CO/VIG/47/2006/268 4-Mar-

06 105

16.10 Forwarding of Certificate in Respect of all CTE Quarterly Progress Reports

HAL (VIG) HAL/CO/VIG/47/ 2008/08 3-Jan-

08 106

16.11

Deficiencies in Respect of Quarterly Progress Reports (QPRs) Noticed by the Chief Technical Examiner, CVC (CTE’s Org), New Delhi.

HAL (VIG) HAL/CO/VIG/64/ 2009/690 25-

Jun-09 106

16.12 Intesive Examination by CVC (CTE's Org) of Horticulture Works in HAL

HAL (VIG) HAL/CO/VIG/64/ 2009/926 10-

Aug-09 107

16.13 Intensive Examination of CTE - Steps for early finalisation of pending vigilance references with CVOs - reg.

CVC 13/6/09 11-

Aug-09 108

MISCELLANEOUS

17.1 Examination of Works by the CTE Organisation - Full Cooperation to be Extended

CVC 5T DSP 18 2-Jun-

89 108

17.2 Procurement against Proprietary Certificate HAL (SYA) SYA/GENL/99-00/10/240

19-May-

00 108

17.3 Mentioning of Name- Designation & Date by Signatories on Note Sheets and Documents/Correspondences

HAL (VIG) HAL/CO/VIG/47/2000/804 24-

Aug-00 110

17.4 Material issued to Sub-Contractor HAL (SYA) SYA/GENL/99-00/009/241 19-

May-01

110

17.5 Consideration of Indian Agents CVC, CTE 12-02-6-CTE-SP(1)2 7-Jan-

03 111

17.6 Consideration of Indian Agents CVC, CTE 25/04/04 21-

Apr-04 111

17.7 Sources for Purchase of an Aeronautical Proudcts and Materials from Russia and other EX-CIS Countries

Dir (Fin) HAL/CD/617/2004 7-Oct-

04 112

17.8 Insurance Policies GM, FIN FIN/C-12/INS/05-06 14-

Mar-06 112

17.9 The Directory of Approved Sources of Aeronautical Military PurposeProducts from Russia.

GM (IMM) HAL/CD/617/2007 26-Jul-

07 113

17.10 Revision of Purchase Manual Dir (Fin) HAL/DF/PM/MISC/07-08 25-

Jan-08 113

17.11 Measures to Curb the Menace of Counterfeit and Refurbished IT products

CVC 007/CRD/008 Cir No. 07/02/08 15-

Feb-08 114

17.12 IT Procurement CVC 008/VGL/016 Cir No.9/2/08 18-

Feb-08 117

17.13 Guidelines on Financial Concurrence HAL [DF] DE/100-28/08 23-

May-08

117

17.14 Referring Cases of Procurement to the Commission

CVC 008 /CRD/008 (Cir No. 22/07/08)

24-Jul-08

118

1

WORKS & CONTRACTS

1. CONTRACT MATTERS 1.1 Contract Matters - Simplification And Economizing I n The Contract

Procedure The Central PWD contracting procedure envisaged preparation and approval of tender documents for sale to tenderers whenever tenders are to be invited. The tender documents inter-alia include the following:-

1. Index 2. PWD Form-6 (Notice Inviting Tenders) 3. Press Notice

4. PWD Form 7 or 8 containing General Rules and directions, Memorandum, Conditions of contract containing Schedules of Plant & Machinery (clause-34) and materials to be issued departmentally (Clause-10).

5. Correction slips to the PWD 7 or 8. 6. Specifications, in addition to stipulating the relevant CPWD Specifications

(printed booklet) with Correction Slips, particular specifications for items not covered in the printed booklet or deviations/departures there from are stipulated.

7. Special conditions of contract, in which, conditions not occurring in the PWD Form 7 or 8 or deviations/departures there from are stipulated.

8. Bill of quantities. 9. Drawings (if any to be incorporated).

10. Letters exchanged between the Department/Contractor which are invariably made part of the contract agreement including the acceptance letter.

2. It is felt that every time a tender is to be invited; a lot of avoidable work has to be done in compiling the documents, correcting and attesting each correction initially in the Draft Tender Document and subsequently in the tender documents before stating to contractors. This gives considerable scope for errors and omissions which may result in contractual compilations and litigation. Earlier all the printed forms, such as, PWD 6, PWD 7 and PWD 8, used to be printed in Government of India Presses in large quantities (in lakhs) and were available for use by the departmental Engineers and the chance of mistakes occurring in each batch were remote. But in the past few years it is seen that either Government supplies are not forthcoming in required quantity or not being received at all and the Circles and Divisions of the CPWD are resorting to local purchase of such forms from local (unapproved) printers at various stations who have practically to control over the language and accuracy of such an important document which ultimately becomes a legal document. These printers are printing and supplying tender forms to various other Organisations such as DDA, P&T Civil Wing, All India Radio - Civil Wing, Municipal Corporation of Delhi, NDMC including some public sector undertakings that are following CPWD Form and they resort to changes in the forms to suit these agreements. It is often seen that the draft Tender Document approved by the competent authority includes forms printed by different printers or the same printer with a different printing block than those on which the tender documents are prepared by Divisions for sale to contractors. This further leads to avoidable complications. In order to solve this problem, it is suggested that the portion of PWD 7 or 8 containing the general rules and directions and the Conditions of Contract (excluding Schedules for issue of Plant & Machinery) and Materials but including labour regulations, safety codes

2

and Model Rules can be get printed as a standard booklet and made available on sale to contractors and the general public and also issued to Engineers of CPWD.

3. This document (printed book) can be referred in PWD 6 Memorandum or Special Conditions of contract just as the printed specifications booklets are referred to making them a part of the contract. This will not only obviate the necessity of compiling bulky tender documents but will drastically reduce the expenditure on stationery and printing of such contract conditions. The manpower required to do the compilation, checking and correction work can be reduced substantially and will reduce the chances of mistakes creeping in, in the agreement finally entered into with the contractor. Also whenever tender documents are to be sold, the Divisions compile a large number of documents many of which are not sold thus resulting in infructuous avoidable expenditure and wastage of PWD forms 7 or 8. Therefore, it is felt that the above proposal will ultimately be economical to the Government. Also this suggested procedure will save a lot paper work which is at present being used for this purpose. 4. The Schedules of Plant, Machinery and Materials (referred to in Clauses 34 and 10 respectively) can be printed along with and made part of Memorandum which the contractors have to sign, get witnessed and return on the date of opening of tenders. The present system of cyclostyling the correction slips to PWD forms 7 and 8 at Circle/Zonal level, for incorporating in the tender documents can continue till a regular system of making the printed ones available at nominal/reasonable cost is brought into force. This will also ensure that all the correction slips forming part of the agreement are available. 5. It is also seen that each Zone, Circle and Division has formulated special conditions which quite often vary from one office to the other, in language, meaning and interpretation. It is preferable that such special conditions are not drafted in consultation with the Senior Counsel of PWD, and circulated to all offices in order to maintain uniformity in the Department. 6. Lastly, it may be stated that in many PSUs and Government Depts. like the Railways, DGS&D, the suggested system prevalent and functioning satisfactorily.

(CVC (CTE’s Org) LETTER No 9Q-9-CTE-7 dated 04 th Jul 1988)

1.2 Contract Matters 1. It is observed that most of the PSUs and Financial Institutions leave the drafting of the standard conditions of contract to their Architects of Consultants. Very often the tender documents are badly drafted and result in serious contractual complications. Sometimes the contract conditions are ambiguous or contradictory to other conditions in the tender documents. 2. Under their letter No Adv(c)/Genl-53/71 Cir-103/73, dated 06 Feb 73 the BPE have issued a standard contract form. Subsequently, certain amendments to this contract form were circulated vide their letter No BPE/GL-019/75.Con/Adv(c)/Genl-53/71/128 dated 21 Jul 75. Guidelines for adoption of this standard contract form are laid down in Clauses 3.8.7 and 3.18 of the Booklet entitled “Government Policy on Management of PSUs - Volume II” published by SCOPE. The following recommendation has been made:

3

“The standard contract form evolved by the BPE may be used as far as possible with suitable modifications to meet the local requirements for common types works like townships, simple factory buildings, storage buildings, offices etc.”

3. The above guidelines are brought to the notice of all PSUs, Financial Institutions and Cooperative Societies for necessary action. Adoption of such a standard contract form will result in more effective contract management and considerable reduction in disputes with contractors. It is requested that this circular may please be given vide circulation among the Chief Engineer of your Organisation.

(CTE’s Organisation) letter No 9Q-9-CTE-7 dated 05 th Jun 1991)

1.3. The Contracting Systems In Public Sector Undertakin gs During the CVO's Conference convened by the Central Vigilance Commission on

the 11th and 12th September, 1997, the Central Vigilance Commissioner had constituted a Committee to go into the system of contracts prevalent in our Public Sector Undertakings and to suggest, wherever required, methods of streamlining the contracting provisions. The Commission is pleased to enclose a copy of the “Report of the Committee of CVOs on the Contracting Systems in Public Sector Undertakings”. The Commission feels that the suggestions made in the report are very practical and could constitute a strong framework for preventive vigilance in the area of contracting which today seems to be vulnerable to the manipulations of interested parties. The suggestions, if followed, could make Contracting of Works: I more transparent process and this in itself should be a step in the right direction. We are sure that your organization would keep in view the suggestions in the report for future award of contracts. With this end in view, you may ensure that all the relevant departments in your organisation are aware of the contents of the report.

(CVC letter No 98/MST/001 dated 26 th Mar 1998)

1.4. Formulation Of Force Majeure Clause As Vetted By Mi nistry Of Law 1. Should any force majeure circumstances arise, each of the contracting party shall be excused for the non fulfillment or for the delayed fulfillment of any of its contractual obligations, if the affected party within 15 days of its occurrence informs the other party in writing. 2. Force majeure shall mean fires, floods, natural calamities or other acts such as war, turmoil, strikes (as not limited to be establishment of the seller), sabotage, explosions, quarantine restrictions beyond the control of either party. 3. It is understood and agreed between the parties hereto that the rights and obligations of the parties shall be deemed to be in suspension during the continuance of the force majeure even as aforesaid and the said rights and obligations shall automatically revive upon the cessation of the intervening force majeure event. The period within which the rights and obligations of the parties shall be in suspension due to force majeure event shall not be considered as a delay with respect to the period of delivery and/or acceptance of delivery under the contract or otherwise to the detriment of either party. 4. Notwithstanding the provisions of the immediately foregoing clauses it is further understood and agreed between the parties hereto that in the event of any force majeure

4

persisting for an uninterrupted period exceeding 6(six) months, either party hereto reserves the right to terminate this contract upon giving prior written notice of 30(thirty) days to the other party of the intention to terminate without any liability other than reimbursement on the terms provided in this agreement for the goods received. 1.5. Incorporation Of Force Majeure Clause In Contracts 1. In one of the contracts examined by the CVC in the recent past, CVC made the following observations regarding incorporation of force majeure clause :-

“Force majeure clause was never asked by M/s NASCHEM but the same was included in the contract placed on M/s NASCHEM. As per procedure Force Majeure clause is to be incorporated when the supplier specifically insists and there is no alternative but to accept the same. In that situation, the supplier should be persuaded to accept the Department’s standard Force Majeure Clause so that the Government interest is fully protected”.

2. On another similar contract CVC made the following observations on the same subject:- “Ministry of Defence has not brought out any documentary evidence to show that the supplier specifically asked to include Force Majeure Clause in the Contract. Normally Force Majeure Clause is loaded in favour of the seller and it gives escape to the seller to wriggle out of the contract in case of such force majeure conditions; the purchaser has no remedy but to either cancel the contract without financial implications or wait for the indefinite periods and at times bear financial escalation costs. In case the force majeure clause is to be included it should be standard clause, which is not loaded in favour of the seller but also protect the interest of the purchaser”. 3. When it was brought to the notice of the CVC that force majeure clause was being included in the contracts as per formulation earlier vetted by the Ministry of Law and it would not be correct to include that the vendor would not have sought inclusion of force majeure clause in the contract, the CVC made the following observations: “Ministry of Defence have not brought out any documentary evidence to show that the supplier specifically asked to include Force Majeure Clause in the Contract. In case the Department is stipulating the Force Majeure clause in all the contracts of their own, then the same needs to be reconsidered in light of the position already explained in our observations.” 4. In the light of the CVC observations, Force Majeure clause may not be included suo moto in the contracts forwarded to the seller. However, when the seller insists for inclusion of such a clause, the case should be examined in the light of the CVC observations, referred to above. In case where it is decided to include a force majeure clause in the contract, the clause as per Annexure, which has recently been got vetted from the Ministry of Law, may be used as a standard clause. 5. Addressees are requested to kindly note the directions of the CVC. These may also be brought to the notice of all procurement agencies under them.

( MOD I.D. No 34(9)/2000/D(GS-IV) dated 18 th Jul 2001 )

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1.6 SCOPE’s Forum of Conciliation & Arbitration (SFCA) Department of Public Enterprises, (DPE), Govt. of India has approved to set up an Arbitration Forum to be known as “SCOPE’s Forum of Conciliation & Arbitration” for redressal of disputes arising out of various contracts between Public Sector Enterprises (PSEs) & Private Agencies. 2. As per the present system and practice DPE guidelines and Article-159 of the Articles of Association of the company deals with resolving disputes arising between two PSEs or between PSEs and any Govt. Departments / Agencies by referring the same to arbitration in the DPE. 3. The Works & Contract procedure of HAL provides for a clause for resolving disputes with private agencies by referring the matter to the sole arbitration of MDs / GMs and in the event of non-resolution by the sole arbitrator, the matter is referred to the arbitration of some other person appointed by MDs/GMs as laid down in the Works & Contract procedure. 5. SCOPEs Forum of Conciliation & Arbitration facilitates resolution of disputes between PSEs and Private Agencies. It is, therefore, suggested that if agreeable to the Private Agencies, the following clause may be included in such contracts / agreements / supply orders other than contracts / agreement covered by para -2 & 3 above, entered into with Private Agencies:- “Any dispute or difference what so ever arising between the partles out of or relating to the construction, Interpretation, application, meaning, scope, operation or effect of this contract or the validity or the breach thereof, shall be settled by arbitration in accordance with the Rules of Arbitration of the “SCOPE Forum of Conciliation and Arbitration” and the award made in pursuance thereof shall be binding on the parties”. (CO/SEC/14(18)/2004 dated 16 th Mar 2004) 2. SERVICE CONTRACTS

2.1 Engagement Of Casual Labour/Term Contract Labour/Se rvice Contract

Labour -Review

1. It may please be recalled that in the past a number of instructions have been issued to the Divisions on various aspects, pertaining to employment of Casual/Term Contract Labour and Service Contract labour. 2. From the data received from the Divisions on periodical basis it has been observed that, over a period of time the number of personnel engaged under service contract have gone up. It has also come to light that Divisions have been engaging labour under various methods such as work order, purchase order etc. Instances have also been brought to notice where some Departments in the Divisions are engaging labour without the concurrence/knowledge of Personnel Department concerned.

3. It may be appreciated that engaging personnel under various guises, as above, defeats the very purpose for which instructions have been issued by Corporate Office from time to time. Of late, various Supreme Court Judgements especially Judgement of May 95 & December 96 in Gujarat Electricity Board and Air India Statutory Corporation have remarked adversely about PSUs engaging contract labour by indulging in unfair

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labour practices ostensibly for saving money. It has further been held that once the contract labour system is abolished on any processes, the labour engaged on such processes become automatically employees of the Principal Employer. It may thus be observed that while on the one hand, HAL has been making concerted efforts to reduce the manpower especially in indirect categories, on the other, HAL may be bound to absorb such labour when engagement of contract labour is prohibited by the Appropriate Government. As such, it becomes utmost essential for us that engagement of Casual Labour, Term Contract Labour and Service Contract Labour is carried out in a most cautious manner with a view to effectively containing both financial and legal implications to HAL. 4. In view of the recent developments, Judicial Pronouncements etc. it is, therefore, felt that there is an urgent need to have a thorough review of the system of engaging casual labour / Term Contract Labour and Service Contract Labour or any other type of contract labour in each of our Divisions and every effort should be made to reduce the number of these labour. Simultaneously it is also imperative for us to explore the possibility of doing the said jobs by mechanization and other rationalized methods. Some of the steps that could be considered by the Divisions are indicated below:-

(i) Contract labour should not be employed in areas where regular employees are also working;

(ii) As far as possible, all major contracts should be awarded to the reputed contractors who deploy their regular employees by transferring them from their existing establishments and after the contract is over, these workers shift back to some other establishments of the contractors;

(iii) Only those contractors should be engaged who are having separate PF Code numbers and they should comply with the provisions of various statutory provisions;

(iv) All Sham contracts i.e., contracts which attract the provisions of Section 10(2) of the Contract Labour (Regulation & Abolition) Act may not be renewed.

(v) Labour who have attained the age of 58 years should not be engaged by the Contractors; No replacement is to be made against any such wastages;

(vi) Divisions may also consider introduction of mechanization in suitable measures, awarding contract for the total work by way of service contract by indicating comprehensively scope of work to be carried out rather than number of labour required;

(vii) Distancing of HAL employees (Executives & Workmen) from the Contract Labour be done by :- (a) Supervision of contract labour is to be made by supervisors of the

Contractors only; (b) Deployment of the Contract labour by the

5. Keeping the above aspects in view and to safeguard interests of HAL against any adverse impact on this account, the Divisions should critically review the issue and effectively reduce the number of existing contract labour - SCLs & TCLs, to the extent of at least 15%, by adopting various measures like mechanization, clearly defining the scope of work and other ways as brought out in para 4 above, at the time of entering into fresh contracts from now onwards.

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6. Action plan drawn out by Divisions in this regard may please be intimated to me by 15th December 1997, positively.

(HAL/P&A/20(18)-3/PF/96/1266 dated 17 th Nov 1997) 2.2 Engagement Of Casual Labour/Term Contract Labour Et c

As you would recall, the implication of engaging contract Labour/Continuing with

the Contract Labour System, as a result of the following developments, was discussed in the Directors Meeting with the Chairman on 1/2nd March 1999 :-

i) Judgement of the Hon’ble Supreme Court in the Air India Statutory Corporate Case;

ii) Central Government becoming the Appropriate Government for Central PSEs, for the purpose of the Contract Labour Regulation and Abolition Act, consequent to the above Judgement;

iii) Prohibition of the Contract Labour System in Sweeping, Cleaning, Dusting and Watching of Buildings vide Central Government Notification No SIO 779(E) dtd 9-12-1976, which is applicable to HAL now, consequent to (i) and (ii) above.

2. After discussions, the following decisions were taken:

i) Divisions should scrupulously follow the guidelines contained in Corporate Office letter No JHAL/P&A/20(18)-3/PF/96 dated 7th Nov 97 in dealing with the Contract Labour System. IN particular, it should invariably be ensured that:-

a) Regular Workmen and CL/TCL/SCLs are not employed/engaged for the same/similar work in the Division/Office. b) Contracts are awarded only to register Companies/Firms who are having their own permanent employees and who satisfy the following criteria:-

- Who have own Terms and Conditions for employing Permanent Labour;

- Their employees are issued with regular offers of appointment etc;

- whose employees are transferable from one company to another (i.e. Labour not engaged exclusively for HAL)etc.

It was felt that once Contracts are awarded to such Companies/Firms only, requirements of complying with various Statutory Provisions (like PF, ESI etc) would automatically be taken care of by those Companies.

ii) If existing Contractors are fulfilling the specified conditions, they can also

be considered. iii) Tender Documents should be drafted in such a way that all the specified

requirements are taken care of. Scope of Work to be clearly spelt out in the documents. Number of Workmen should not be mentioned anywhere.

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Quotations should be invited only for Companies/Firms who meet the specified conditions.

iv) Existing Contracts, when renewed, should also conform to the specified

Parameters. 3. In addition to the above general approach, the immediate problem of Contract Labour in the prohibited areas of Sweeping, Cleaning, Dusting and Watching of Buildings was also discussed at length. Though the matter has been taken up with the Government seeking exemption from the 1976 Notification and also for possible withdrawal of the said Notification(Scope’s Review Petition before the Hon’ble Supreme Court also refers), it was felt that we should evolve our own clear cut approach in this regard. Number of alternatives including interactions with the existing contractors, interactions with Firms like Sulabh Shouchalaya, Joint Venture Company, Subsidiary etc were discussed. While these avenues are to be explored to reach a long term solution, as an immediate step, it was decided that future Contracts in these areas should also be given to the registered Companies etc, who fulfill the laid down parameters only. 4. The issue being very sensitive, which would have far reaching implications, Chairman had advised MDs to take all necessary steps in this regard, through their GMs in consultation with GM(P&A), Corporate Office. 5. Further, it was also decided that there should be no increase in the strength of Casual Labour/Term Contract Labour, if any, engaged by the Divisions/Office. 6. You may take further necessary action in this regard, accordingly.

( HAL/P&A/20(18)-3/PF/99 dated 24 th Mar 1999) 2.3 Guidelines On Service/Term Contracts And Their Exte nsion 1. A large number of service contracts are being undertaken by the Divisions and other offices wherein a large outlay of company finance is involved. The types of such contracts undertaken in HAL are:-

(a) Horticulture Maintenance (b) Sanitation and House Keeping Services (c) Canteen Services (d) Supply of Canteen Grocery/vegetables/horticulture materials (e) Transport Contracts (f) Contracts for drivers (g) Annual Maintenance Contract for Computers (h) Term Contracts for Operation and maintenance of Generators (i) Miscellaneous job contracts of civil Works of Plant Maintenance (j) Cargo contracts (k) Term contract of civil works and plant maintenance

2. The study carried out on certain contracts has revealed that though the contracts were initially awarded for a particular period, they were thereafter successively extended on the following grounds:-

(a) Provision in the contract conditions for initially awarding the contract for one year term and then extendable mutually for another year.

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(b) Delay in initiating tendering action for fresh contract prior to the expiry of previous contract.

(c) Entire quantities of contract on works not executed within the contract period.

(d) Progressive requirement of regular/routine repair complaints on civil/ plant maintenance works.

3. Extensions of contracts in such a manner may result in the loss to the Company due to the following main reasons: -

(a) In certain contracts it was observed that estimates have not been prepared by the department at all and in the absence of a realistic estimate, the offers from the contractors is not evaluated reasonably. In certain cases the L-1 quote has been taken as estimates and even in few cases, some arbitrary percentage is added to indicate working out of estimates, which is highly irregular and results in huge losses to the Company. The very fact that the contractor has agreed to extend the previous contract on same terms and conditions much beyond its original contract period and value, indicates that at the first instance itself the contract would have been awarded at a higher margin to him. (b) The liberalized environments, recession in market and growing competitiveness if not taken into account by way of fresh tendering the, Company may continue to loose money on account of higher value of extended contracts primarily due to non-preparation of proper/realistic estimates and inadequate competition at the time of initial tendering process.

4. Considering the financial implication in extending such contracts, on grounds mentioned in para 2 above, it is necessary to analyze the extension of contracts in a exhaustive manner by taking into account the aspects of the transparency in contract administration, cost effectiveness and also minimizing statutory liability of the Company on labour oriented contracts. It is, therefore, necessary that following guidelines are adhered to while handling extension of time of contracts:-

(a) The period of contract must be explicitly specified in the contract for one year or two year as the case may be. By specifying a definite contract period, the price offer received will be more competitive as the contractors will know the period of business which eventually could bring down the overheads in quotes. This will also obviate the chances of any malafides attributable to the contract handling person and likely favour, which could be extended to a particular contractor by way of repeated extensions. (b) Provision/clause such as "extendable by another year by mutual agreement" should be removed/discontinued in future tenders, effective from the date of issue of this letter. (c) Tendering for the fresh contract should be taken up by the competent authority well in advance as per the time frame required for notification and finalization of tenders as per procedures laid down in Works and Contracts Procedure and Purchase Manual, which should be minimum 3 months prior to the termination of the current contract. Since CVC guidelines lays down banning of negotiations other than L 1 party (Refer CVC letter No 8(1)(h)/98(1) dated 18 Nov 98), there are chances of certain unscrupulous parties not reducing the

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quotes during the negotiation stage, it would be prudent to cater for time required, if any, for the re-tendering process. (d) Labour intensive contracts such as sanitation and house keeping and horticulture maintenance wherein the minimum wages and statutory payments constitute the major portion of the contract amount, should invariably be framed with definite time period as most of these contracts have provision for catering the future increase in wages/statutory payments within the quoted amount of the contract. This eventually leads to higher quote due to the present practice of repeated extensions of the contracts since the quotes are based on assumed future increases in minimum wages/statutory payments. It is desired that such contracts are not extended beyond their specified periods.

5. However, there can be certain unavoidable circumstances, wherein the competent authority feels that the extension of a particular contract will be financially beneficial to the organization and decides to extend the contract. In such cases, which should be exception rather than a routine, the initiating authority in his note shall make a speaking order giving very clearly the financial advantages the company shall have by way of extension and a certificate to the effect that "There is no financial loss to the Company on account of extension of time upto ……" should form part of the approval note, initiated by the concerned department handling the contract, which should be duly concurred by Finance and approved by the Competent Authority empowered to grant such an extension of time as per delegation of powers. 6. Detailed guidelines on award and execution of transport contract is enclosed at Appendix -A.

APPENDIX-' A (Refer Para 6 to HAL CO Letter No.

HAL/CO/VIG/47/2001/465 dt 12 Apri1 2001)

Guidelines On Award And Execution Of Transport Cont ract 1. Award of Transport contract should be on Kilometer basis, rather than lump sum. Award of contract on Kilometer basis is advantageous to the company, since vehicles are not required by the Divisions throughout the day. Following aspects may be considered while preparing the estimates:-

(a) Fixed Cost (i) Capital cost! Interest (ii) Motor Vehicle Tax and/or Insurance (iii) Crew wages

(b) Variable Cost

(i) Fuel and lubricants (ii) Spares (iii) Labour charges

(c) Capacity of the Bus

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2. NIT should clearly specify the number of buses required by the company and the make of the buses. It should also specify that the tenderer should have all the buses on his own name, as on the date of submission of tender. 3. Under no circumstances, a party should be allowed to engage the buses of other parties including those who are party to the tender. 4. In case of partnership firms, the buses should be in the name of the firm, not in the name of individuals. 5. The tenderers should have proven record of executing similar contract in large industrial establishment/organisation for at least 5 years. 6. In case the contract is not based on Kilometer basis, NIT should clearly specify whether buses required are on full time basis or only during specified timings, in which case only variable cost should be paid. 7. The tenderer should furnish details pertaining IT clearance. 8. The party should be financially sound. 9. Clause for proportionate deduction from the bills should be introduced for Sunday/ Holiday/un-utilized days. 10. The contractor should produce receipts for all taxes paid, along with his bill submitted for payment failing which payment may be withheld. 11. Penalties for late arrival of buses should be proportionate to the man-hours lost due to late arrival of buses. 12. The committee of technically competent persons should be formed to assess the tenders and hold negotiations with the lowest tenderer. 13. At any cost, negotiation should not be held with other than L-1. In case the negotiations with L-1 does not yield acceptable result, retendering could be ordered, in this connection please refer Para 2.4 of CVC letter No 8(1) (h)/98(1) dt 18 Nov 98, 98/0RD/1 dt 15 Mar 99 and 98/0RD/1 dt 24 Aug 2000(enclosed) 14. Preference should be given to State owned transport corporation or other Public Sectors in the award of contract. However, equal opportunity should be provided to all parties to have better competitive quotes. 15. A proper record should be maintained for issue of documents and receipt of tenders from the parties. A committee should be constituted for this purpose. Please refer Para 1 (a) of HAL Corporate letter No HAL/CO/VIG/64/23 dt 06 January 2000(Check under the heading Common Irregularities in Works-Observations by CTE-Instruction regarding). 16. Prior to issue of tender documents, the credential of the parties should be verified in order to avoid any litigation or formation of cartel. 17. The contractor should provide vehicles with fuel and driver.

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18. The vehicle should give trouble free performance and should be always kept clean and hygienic. 19. All vehicles should be registered with appropriate RTO authorities for movement in any part of the city and should have white and black registration board. 20. In case of accident/breakdown, the contractor should attend the formalities, with Traffic Police, RTO authorities as well as court proceedings including Motor Vehicle Act claim, if any and the contractor should provide alternative service on all such occasions. HAL should not be made to bear any expenses in this regard. 21. Each vehicle should be provided with one log book to record the mileage/Kms covered and for the time taken. 22. The contractor should ensure that vehicles ply only on HAL authorized routes specified for each vehicle as per route survey and no deviation/violation is permitted. 23. Circumstances beyond control viz VIP visits, Traffic obstructions, riots disturbances enroute, and other reasons beyond control should be brought to notice immediately. 24. Contractor should submit a list of vehicles with Registration No earmarked for this contract to the Transport Department for identification, with copy to Purchase Dept. In advance, the replacement vehicle Registration No. is also to be informed. 25. The drivers should be polite with pleasing manners, Co-operative and disciplined and should not be drunk, smoke while on duty and drivers should have proper and valid driving license. 26. The drivers should keep up punctuality while reporting for duty at the pick up/dropping points. A minimum waiting period should be allowed while picking up/dropping points. 27. In case of break down/accident en-route the driver should immediately inform over phone about the incident to HAL transport authorities as well as the contractor to make immediate alternative arrangements to transport the officers/pass holders and for other needful action. 28. The contractor will be held responsible for proper conduct, behaviour and safety of drivers and HAL will not be in any way responsible for the improper conduct, behaviour of the contractor's drivers/staff. 29. The contractor should arrange any extension of route if required by HAL as and when need arises. 30. HAL will not be responsible for any loss, damage, loss of life of contractor's drivers and any others' in case of accident. MACT/any other compensation should be settled by the contractor himself through his own means. 31. The contractor should ensure that unauthorized passengers are not picked up by the drivers while transporting of officers/pass holders enroute.

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32. The contractor should ensure that comprehensive insurance coverage is provided to the officers/pass holders on the board. 33. The contractor should provide required staff at HAL premises to ensure proper operation of the trips and maintain the schedules. 34. Distance covered in Kms as per schedule route to be certified by our Transportation allocation in-charge at the end of each trip. 35. Bills in triplicate duly certified by our Transport authorities for the total distance covered by each vehicle in each month with satisfactory performance should be sent to Purchase Department before 10th of each month for scrutiny and payment action 36. The rate quoted is firm throughout the period of the contract and no increase in rate what-so-ever is applicable. General terms and conditions of the HAL contract wherever is applicable will be applied. 37. In case of any unpunctuality because of break-down or for any other reason attributed to contractor and if such delay is more than 30 minutes at the original point HAL is entitled to pay only 50% of the hire charges. In case of non-operation for reasons attributable to contractor, HAL is entitled to recover from the Bill, cost of the trip and penalty as decided by the committee thereof for the trip missed. 38. In the event of any upward price revision of Diesel by Government of India and any other levies imposed, the same will be negotiated for proportionate increase or decrease on kilometer basis, worked out on average per kilometer to a litre. 39. Care should be taken to prevent Cartelization of transportation contracts through submission of tenders under different names, at times they belong to a single family which lead to monopoly over services at the cost of genuine tenderers. 40. Verification of experience and ownership certificates of transporters should be carried out to prevent induction of inexperienced parties not owning the required fleet of trucks. 41. Failure to take note of consistent acts of malpractices by the transport contractors results in loss to the Company. The same should be monitored and prompt action should be taken. 42. Security Dept of the Division should be made responsible for maintaining records for physical reporting of buses. Reports about late arrivals should be submitted by Security dept to the Finance Deptt with a copy to Transport/Admin Deptts for effecting necessary recovery. The Security Dept will also conduct surprise checks of driver, cleaner, driving license, RC book, insurance, fitness, No of bonafide travelers etc in co-ordination with Transport/Admin Depts. 43. The contractor at the time of agreement should intimate in writing about any supervisor, if appointed, to P&A, Security and Finance simultaneously. 44. In contract price, escalation factor should be assessed carefully from financial angle.

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45. The contractor should remit Security Deposit as per Para 18 & 19(Page 29) of HAL Works and Contracts Procedure Manual, which will not earn the party any interest and principal amount will be refunded at the end of the successful completion of the contract. 46. Security Deposit will be forfeited for any default or non-completion of contract. 47. HAL will have the right to cancel/stop the contract increase/decrease the number of vehicles required at any time without prior notice and without assigning any reasons and corresponding amount will be paid/deducted to/from the contractor’s bill. (Above is Para 6 to HAL CO Letter No. HAL/CO/VIG/47 /2001/465 dated 12 th Apr 2001)

2.4 Codification Of Service Contracts Awarded By HAL 1. Refer this office letter No HAL/CO/VIG/47/2001/465 dt 12 Apr 2001. 2. It is seen that HAL has quite a. few service contracts, which are awarded year after year. A list of such contracts is enclosed at Appendix `A'. It is noticed that there is no codified manual or instructions for handling these contracts and staff in the Divisions is left to handle these contracts based on the HAL Purchase Manual, Works & Contract Procedure Manual, DOP and individual experiences. During the routine vigilance inspections and system study conducted on service contracts, following are noticed:-

(a) No uniform procedure is followed in the Company, and at times even within the Divisions, which is due to lack. of unambiguous guidelines/instructions . (b) Due to lack of codified procedures/guidelines, the staff ends up making recommendations which come under observations of Government Audit, System & Audit, as well as Vigilance. This leads to avoidable waste of time in answering queries, unnecessary harassment and delay in execution of contracts. (c) In some cases non-existence of codified procedures/guidelines leads to malpractices by unscrupulous employees resulting in pecuniary losses to the Company. (d) In few instances CBI has taken up cases in the recent past which has resulted in avoidable demoralization and loss of faith in the system by the honest employees, resulting in play safe technique being adopted.

3. In order to overcome the above problems and to ensure that the Company does not lose precious time and money, there is an urgent need to codify procedures for various service contracts. Considering the long list of service contracts being handled by the Company, there is a need to distribute preparation of procedures of these service contracts Complex-wise. Accordingly the type of service contract to be codified is listed against each Complex as per Appendix 'B'. Documents prepared by the Complex should be complete in all respects for the particular group of service contracts comprising procedures and formats compiled in a book form. You are requested to please direct your GMs to have it prepared and send it to the undersigned by 31 Aug 2001 for compilation in a book form. It is requested that besides sending these details in a book form (hard copy) the data may please be sent on a floppy (worked on MS-WORD) for working on computer in this office.

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Appendix `A’ Service Contracts In HAL 1. Transport Contracts. 2. Cargo Contracts related to transportation of goods. 3. Fire Alarm Systems. 4. Industrial/Office furniture repairs. 5. Sanitation and Housing Keeping Services. 6. Horticulture Maintenance. 7. Access Configuration/ Attendance System. 8. Lifts/Cranes/Hoists. 9. Mechanical Transport on hire. 10. Other labour intensive service contracts in Factory/Township. 11. Contracts for Drivers. 12. Term Contracts for Operation & Maintenance of Generators and Compressors. 13. Miscellaneous job contracts of Civil Works and Plant Maintenance. 14. AMC for Computers. 15. Office Equipment (Photocopier, FAX machines, exchange/ EPABX, Telephones,

Air Conditioning equipments etc ). 16. UPS System. 17. CNC/NC Machine. 18. Water supply installations and distribution (Operation & \ Maintenance). 19. Effluent treatment plants/sewage treatment plants and Water recycling plants

(Operation & Maintenance). 20. Air Conditioning installations maintenance/operations. 21. Canteen Services (Labour contract). 22. Supply of Canteen Grocery/vegetables/horticulture materials. 23. Annual Contract for providing Security Guards. 24. Operation of Incinerators.

Appendix -B

Complex Wise List Of Service Contracts For Codifica tion

List A (MiG Complex) 1. Horticulture Maintenance. 2. Access Configuration/ Attendance System. 3. Lifts/Cranes/Hoists. 4. Mechanical Transport on hire. 5. Other labour intensive service contract in Factory/Township. List B (Bangalore Complex) 1. Contracts for Drivers. 2. Term Contracts for Operation & Maintenance of Generators and Compressors. 3. Water supply installations and distribution (Operation and \ Maintenance). 4. Effluent treatment plants/sewage treatment plants and Water recycling plants

(Operation & Maintenance). 5. Air Conditioning installations maintenance/operations. 6. Canteen Services (Labour contract). 7. Supply of Canteen Grocery/vegetables/horticulture materials. 8. Annual Contract for providing Security Guards.

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9. Operation of Incinerators. 10. Other labour intensive service contract in Factory/Township. List C (Accessories Complex) , 1. Fire Alarm Systems. 2. Industrial/office furniture repairs. 3. Transport Contracts. 4. Cargo' Contracts related to transportation of goods from stores. 5. Sanitation and House Keeping Services. 6. Miscellaneous job contracts of Civil Works and Plant Maintenance. 7. Other labour intensive service contract in Factory/Township. List D (Design Complex) 1. AMC for Computers. 2. Office Equipment (Photocopier, FAX machines, exchange/ EPABX, Telephone,

Air Conditioning equipments etc ). 3. UPS System. 4. CNC/NC Machine. 5. Other labour intensive service contract in Factory/Township.

(HAL/CO/VIG/47/2001/690 dated 04 th Jun 2001) 3. SUB-CONTRACTING 3.1 Long Term Business Agreements Majority of HAL’s project purchasing is on proprietary basis from foreign manufacturer / licensors/ primary vendors/sources etc. Thus, there is very little scope for buying based on competitive tendering. Most of our requirements for production, repair, overhaul etc. are of repetitive nature. Inspite of these specific features of our project purchases, it has been observed that our purchasing is mainly based on individual enquiry, offer & ordering thereof. Such a system of purchasing will lead to extra effort/manpower, enhanced cycle time, high procurement cost and still may not lead to the best price. Thus, there is need to enter into long term business arrangement with maximum no. of suppliers which will lead to following benefits:

- Better price & terms/ conditions - Reduction in cycle time - Improved vendor relationship - Reduction in procurement cost & effort

2. Although this issue has been discussed & appreciated in various forum, very little effort has been put in this direction by most of the Divisions. In order to achieve tangible results in this area leading to material cost reduction & efficiency in purchase, the following course of action is required to be followed:

(a) Divisions should furnish a list of ‘A’ class vendors based on descending order of annual value of purchases from whom procurement is made on proprietary basis. The vendors with whom long term business agreements are proposed to be entered into in the first instance may also be indicated.

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(b) List of existing long term business agreements, if any, with copy thereof may be furnished. Thereafter, monthly progress report on the effort & result of new agreements need to be forwarded to Corporate Office in the format as per Annexure–I.

(c) In order to obtain maximum benefit to the organization by bulking the requirement for common vendors, if require such agreement may required to be entered into at Complex/ Corporate Office level.

(d) An annual target for purchase through long term agreements with year to year increase like 10% in 1st year, 20% in 2nd year & so on is required to be fixed. (e) Reduction in Material cost achieved through purchasing through long term agreements should be quantified with supporting data & the same needs to be furnished. The above information with the first return should be furnished to the Dy. General

Manager (Commercial), Corporate Office latest by 15th Dec 97 and thereafter by the 10th of every month for report upto proceeding month.

(CD/440/ZB-6/97/582 dated 19 th Nov 1997)

3.2 Guidelines For Indigenization & Sub-Contracting INTRODUCTION 1 Sub-Contracting is a form of off-loading part of Company’s work or certain activity to outside agency in private/public sector when work load is beyond in-house capacity and increase of capacity is not justifiable due to techno-economic consideration. This includes reservation of available in-house capacity for crucial & more difficult items. Sub-contracting covers machining, grinding, milling, turning, casting, fabrication and further processing like heat treatment, plating etc. 2 Indigenization is development of substitutes for imported raw materials, aeronautical systems/components by outside agencies in private/public sector having required specialization, either as design/development contracts or development contracts to Company’s design/specification justifiable techno-economically or need for self reliance. Selection Of Vendors 1 Selection of vendors for the type of work indicated above is extremely important. To achieve the desired result, extensive market survey shall be carried out through normal procedures of open advertisements/or by inviting offers from known sources in the country/ abroad if so required. It shall be ensured that the vendor has adequate facilities, management systems, engineering systems, quality systems, reasonable skills, reliable track-record and financial soundness & stability. These can be assessed either by obtaining documents from the probable vendors or by visiting their works if found necessary.

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General Principles For Source Development 1 The following number of vendors may be developed for indigenization/sub-contract work depending upon the value per annum per item:

2 Having successfully developed source/sources by normal commercial procedures, it must be ensured that orders are placed on the same source/sources without resorting to further tendering but based on rate contract or on a mutually agreed price/price escalation. 3 In case of items requiring two or more sources and in case of succeeding in the development of only one source in the initial attempt, efforts must continue for developing second/third source as the case may be. However, bulk order should continue to be placed on the first source developed and only trial orders on the others until the second or third source is established. 4 While all efforts should be made to sustain and ensure growth of the source/ sources developed, further tendering for the same item should be resorted to only in case of following :

(a) If there is a tendency for slippages in delivery/quality.

(b) Non-adherence to agreed prices.

(c) Inability to meet delivery of the quantity required by the customer due to capacity constraints.

(HAL/CD/617/99/1183 dated 24 th May 1999)

3.3 Long Term Business Agreements Reference is made to instructions issued vide CD/440ZB-6/99 dated 17 Nov 1999 on the subject. The instructions clearly specify the Divisions to enter into Long Term Agreements where there is clear visibility about the requirements based on consumption pattern, repair and overhaul task/forecast projected by the customer as per approved firm & forecast tasks.

2. Chairman has directed that Divisions must explore the possibility of indigenous development of items, keeping in view of Long Term requirements and obtain prior approval of Chairman before proceeding with any LTBA proposal with foreign vendors.

3. The Divisions must comply to above instructions and are advised to consider all techno/economical aspects before considering an LTBA with foreign vendors.

(HAL/CD/617/2002 dated 3 rd Oct 2002)

Category Annual requirement In value per item

Suggested number of Sources

Indigenization Upto Rs 20 lakhs 1 Above Rs 20 lakhs but less than 50 lakhs 2 Above Rs 50 lakhs 3 Sub-Contracting Upto Rs 5 lakhs 1 Above Rs 5 lakhs but less than Rs 10 lakhs 2 Above Rs 10 lakhs 3

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3.4 Long Term Business Agreements 1. Reference Material Management Circulars 22. 2. Following is deleted from Para 2:

“and obtain prior approval of Chairman before proceeding with any LTBA proposal with foreign vendors”

3. Further, in case LTBA has projections of quantity which will be ordered by HAL annually under the agreement, it should include provision for adjusting the annual ordering quantity according to the requirements to provide for variations between the forecast ROH task, firm task and actual inductions. 4. All LTBA are subject to Para 7.9 of Delegation of Powers 2002, reproduced below:

“With regard to entering in to LTBAs with vendors for recurring requirement of items, the appropriate CFA for approval of LTBA would have to be reckoned in line with the value of total requirement during the period for which duration the LTBA is being finalized”.

(HAL/CD/617/2006 dated 4 th Jul 2006)

3.5 Procedure For Outsourcing/ Sub-Contracting Of Tool ing, Components And

Assemblies Policy 1. In the fulfillment of their mission and goals, the Divisions shall consider outsourcing of its workload where such outsourcing could improve efficiency and effectiveness and allow the Divisions to dedicate itself to its core mission of meeting the annual production targets. 2. The Divisions will undertake outsourcing with care and due diligence. Proposals to outsource will include a cost benefit analysis that takes into account both economic and technical factors. 3. “Full utilization of available facilities/ Capaciti es” shall remain the guiding principle for any outsourcing decisions. 4. Outsourcing may be resorted for any of the following reasons:

(a) Lack of internal capacity for the outsourced work (b) Lack of time to complete the task (c) Non-availability of Facilities for the intended Outsource work (d) Savings in cost (e) Reduction in cycle time of the final product (f) Any other reasons, to be recorded.

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Market Exploration and Registration of Sub-Contract or/s 5. In case of work, for which sub-contractors are not already registered with the Divisions, or in case of additional work, where adequate number of subcontractors are not registered, Divisions shall carry out intensive market survey. For this purpose, the requirements shall be put up on HAL website in detail. Further, if considered necessary, Vendor Directory of similar industry within MoD may be referred. Further, press advertisements, if necessary, may be issued as laid down in Purchase Manual, for issue of open tenders. 6. Vendors desirous of registering shall be issued with an application form for registration as Sub-Contractor. Copy of the Draft application format is placed at Annexure-I. Application form shall also be made available on HAL Web Site for intending Sub-contractors to download and apply. The advertisement / invitation to register must clearly specify the department / agency, to whom the application forms need to be submitted. 7. Vendors, who seek registration on their own, may be asked to provide information in the prescribed application form (Annexure 1) and considered for registration. 8. Application forms complete in all respects and received by the Division shall be evaluated by a Committee nominated by GM for the purpose, consisting members from appropriate technical disciplines, Quality Control Dept., head of Outsourcing & Finance or their authorized representatives. Divisions will ensure that, for registration of Sub-Contractors, complete information as per the prescribed format is insisted upon and is obtained. 9. After preliminary screening of the applications received from intending Sub-Contractors, the Committee may visit the vendors’ works, if considered necessary, for better assessment of their technical capabilities and financial strength / standing before registration. In the case of assessment of subcontractors for the manufacture of airborne/ aeronautical standard components / assemblies, it is suggested to include CRI representative also in the Committee visiting the vendor’s works. The Committee shall evaluate the intending sub-contractors for registration considering the following criteria:

• Facilities available with the sub-contractor for manufacture of tools, components

and assemblies • Experience of the sub-contractor in the manufacture of tools, components &

assemblies etc. • Past performance of the sub-contractor if registered / dealt with previously. • Adequacy of systems and procedures • Elimination of sub-contractor who do not have their own main facilities for the

intended job • Elimination of vendors not conforming to quality standards (based on past

performance). • Financial Standing • Profile of customers; if required feedback regarding subcontractor’s performance

/ credibility may be obtained directly from the customers. • After sales organization & depth of service

10. The Committee shall also record reasons / justification for the subcontractors rejected/ not considered for registration. The Committee shall categorize the sub-

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contractors according to their capabilities / interest as suppliers of Cutting tools / Jigs and Fixtures/ Press tools / Ground Handling Equipment or Sheet metal / Machined (general purpose / CNC) / nonmetallic components, Sub-Assemblies, Assemblies etc. The Committee shall make recommendation for registration of the sub-contractor as per sample format Annexure - II. Documents used for registration of Vendors are to be properly maintained for future access & verification. The process of registration shall be completed in shortest possible time, but in no case, later than 2 calendar months from date of application. If, for any reasons, such process is taking longer, the applicant sub-contractors shall be informed. 11. Divisions need to shortlist 5 – 10 Sub-Contractors for each category of items to ensure availability of good Sub-Contractor base to take the load and also generate adequate competition. Data collected during registration process and assessment of Sub-contractors is to be shared with other Divisions, to avoid duplication of efforts. All the Divisions would exchange the list of shortlisted Sub-Contractors. 12. A vendor, who has been registered as a sub-contractor with any of the Divisions of HAL, shall be considered for registration as approved supplier by other Divisions for similar / same family of items without resorting to the formality of fresh application and scrutiny. If necessary, records may be called for from the Divisions who have registered them. However, if one Division has registered a vendor for ‘tooling’ and the other Division intends to sub-contract ‘components’, it needs to re-assess the Sub-Contractor for suitability to take up components. 13. Registration of same sub-contractor for more than one category of work is acceptable, provided the sub-contractor has adequate capacity and capability to take up work. 14. As and when a Sub-Contractor informs the Divisions with regard to any material change in the information declared by him at the time of registration, the Divisions shall note such changes and update the records with a view to decide whether the Sub-Contractor can be entrusted with further subcontract work or otherwise. Notwithstanding voluntarily disclosure, i.e., the Divisions need to ascertain any material changes to the information, declared by the Sub-Contractor at the time of registration, at least once in six months and update the records accordingly and share the information with other Divisions. Directory of Sub-Contractors 15. The respective Division / Office shall maintain a directory of Sub-Contractors registered by them. The directory shall be updated at least once in a year with appropriate additions / deletions depending upon performance of the registered sub-contractors and new registrations done by the Division. 16. For the purpose of a consolidated “Directory of Sub-Contractors”, the Divisions shall forward their directory in soft copy by 31st December of each year to IMM at Corporate Office for consolidation and issue of a companywide directory till a system is put in place, whereby Divisions shall access and update a common Vendor Directory on HAL LAN/ WAN system. 17. Divisions shall issue enquiries / RFQs to currently registered sub-contractors only.

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Sub-Contractor Rating 18. A Performance Evaluation Committee shall rate the registered sub-contractors, category-wise at least once in a year on their performance on the previous supplies. The responsibility of Sub-Contractor rating will rest with Head of Sub-Contracting Group of the Division. A Committee comprising of Members from appropriate Technical disciplines (Tool Engineering, Production, and Quality etc.), Head of Sub-Contracting Group and Finance or their authorized representative will review Sub-Contractor performance based on quality, price and delivery. The Committee shall rate the performance level of each Sub-Contractor on a scale of 100 on cumulative basis considering weightage for each criterion as follows:

• Quality assessed for 50 marks based on the formula No. of Items accepted without re-work Total No. of Items received. X 50 • Delivery of Items assessed for 30 marks based on the formula No. of Items received in time Total No. of Items received. X 30 • Price is assessed for 20 marks based on the formula Sub-Contractor Unit Cost 1 - HAL estimated cost X 20 Weightage on price shall at the minimum be zero and not negative.

19. Sub-Contractors should be classified as Class-‘A” (performance rating 80% and above), ‘B’ (performance rating between 60% and 80%), and ‘C’ (performance rating less than 60%). The performance rating needs to be communicated to the Sub-Contractor to give an opportunity for improvement, wherever warranted. Future enquiries may not be sent, for the same category of items, to a Sub-Contractor falling under Class-C for two immediately preceding years. In case of a necessity to place orders on a Class-C sub-contractor, the same shall be specifically recorded and performance shall be closely monitored by the Divisions. This information may also be shared with other Divisions. 20. Further, in case of any adverse reports from Vigilance and others for any breach of contract, indulgence in malpractice, fraud by the Sub-Contractor, the Performance Evaluation Committee shall look into the same immediately on receipt of such reports and take appropriate action. Proper records shall be maintained in support of such decision. Procedure for Out-sourcing 21. Outsourcing shall be considered for clearly spelt out reasons. In case the reason is stated as shortage in capacity, measure of the internal capacity will be based on available man-hours for the specific work centre. Guidelines for determination of internal capacity, in a uniform manner across all Divisions, shall be issued separately by Management Services Deptt., Corporate Office. The guiding principles would be that the capacity needs to be determined taking into account the availability of machines and the manning levels in the Division. Further, the OT hours sanctioned, and the higher efficiency levels attained by the Divisions would also be reckoned for working out the

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capacity. Instructions being issued by Management Services Deptt., Corporate Office shall be followed in this regard. Material Sub-contracting Request (MSR): 22. MSR is an authority for outsourcing of tools/components etc. from the subcontractors. Division’s Sub-Contracting Cell shall centrally receive all MSRs, raised by concerned departments, like Production Engineering / Methods (for production tasks), Tool Engineering / Methods (for tooling requirements) etc. after due approval . MSR shall indicate drawing number, nomenclature, quantity required and recommended names of the vendors to whom enquiries are to be sent (from the approved register) & likely requirement for next 3-5 years along with year wise requirements. The reason and the necessity for subcontracting the item shall be recorded on MSR and coordinated by the Facility Planning/ Management Services department. No estimates of SMH/ Cost shall be indicated on MSR. 23. Man-hours / estimates required to manufacture the tools / components will be assessed by the management Services / Production Engineering Department in co-ordination with Finance Deptt. Further, Production Engineering Department shall provide assessment of materials & the quantity thereof required for executing each item and with indication of cutting & machining allowances. The estimates, thus prepared, shall be approved by authority approving the MSR. The Deptt initiating the MSR shall be responsible for obtaining approval of MSR and shall send the MSR along with approved estimates (placed in confidential cover) to the Sub-Contracting Cell. The confidential cover, containing the estimates, shall be opened along with the quotes received for the tools / components to arrive at reasonability of the quotes. Competitive Bidding : 24. For the purposes of issuing request for quotations, selection of Sub-Contractors will be done from Directory of registered sub-contractors only. 25. For Tooling, the enquiries / RFQ shall be issued by Outsourcing Group (or the deptt. entrusted for this task by the Division) of the Divisions following Commercial procedures indicating type of tool and delivery requirement as per sample format (Annexure - III). Every RFQ shall have sub-contractor’s registration number. Division will provide required Tool drawings and other technical details etc. along with the enquiry to all the Sub-Contractors. Sub-Contractors will be required to submit their offer indicating price for fabrication of tool including the material. In cases where HAL needs to give the material for fabrication of tool, the same shall be clearly indicated in the enquiry and the Sub-Contractors would be required to quote only for the labour charges. Sealed offers from registered Sub-Contractors only will be opened following the commercial procedure. 26. Negotiations, if required, may be carried out with L1 Sub-Contractor by a negotiating committee as per DOP and orders placed, with such terms & conditions as agreed upon, as per Commercial Procedure. 27. “Commercial procedure” covers Purchase Manual as well as guidelines issued by way of Materials Management Circulars / CVC guidelines / MoD guidelines etc. issued from time to time. 28. In case of Components & Assemblies, the registered vendors category-wise may be officially invited, if considered necessary, to show the drawings / items proposed for

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sub-contract, and to explain the important features, requirements, technologies etc. as well as to clarify technical doubts. Thereafter, enquiry will be issued as per the normal Commercial procedure. In all cases of sub-contracting of assembly work packages without exception, and the detailed components, wherever considered necessary, two-bid system shall be followed. 29. The RFQ should include a projection to the Sub-contractor on total number of sets / assemblies planned to be out-sourced over a specified number of years (say 3-5 years) to enable Sub-Contractor quote best price keeping in view the long term requirement. RFQ may also indicate HAL’s willingness to enter into a Long Term Agreement with Sub-contractor on satisfactory completion of initial orders considering the recurring and non-recurring costs as well as possible cost reduction due to effect of learning curve. 30. RFQ shall specifically require bidders to reflect the cost benefits in base price accruing on account of learning, improvement in productivity etc. and indicate corresponding reduction in base price in the subsequent batches after the initial development batch. 31. In order to generate adequate competition and a good sub-contractor base, it is suggested to have as many Sub-Contractors as possible (at least 5 Sub-Contractors). However, Para 7.2 of Annexure III of Delegation of Powers, approved by the Board, provides, that “where the number of available sources of supply is less than five, the number of suppliers to be addressed may be reduced at the discretion of the General Manager”. Accordingly GM, based on a recorded justification, may take a decision. 32. RFQs for sub-contracting must clearly specify, whether BOIs / Raw Material etc. shall be issued by the Division or the sub-contractor is required to arrange for the same on his own. In the later case, RFQ should stipulate that the cost of BOIs / Raw Materials / Consumables, to be procured by Sub- Contractor, is quoted separately and clearly. 33. Offers received from Sub-Contractors will be evaluated and order processed as per commercial procedures. Purchase Order Placement : 34. Purchase order will be placed on the selected L-1 Sub-Contractor by the Division in accordance with DoP. 35. General Terms & Conditions of the order are placed at Annexure –IV, as a guideline. However, the purchase order must lay down clearly norms of material consumption, if supplied by the Division, agreement on methodology to regulate the scrap etc. 36. The order should also indicate that go ahead for the supply of pilot batch will be given only after successful manufacture / supply of first off sample and further orders after successful execution of the pilot batch. The order may also include a provision to the effect that a long-term agreement may be entered into for supply of the component, depending upon Sub-Contractor’s performance. 37. While the Purchase Orders are released to the maximum capacity declared by the Sub-Contractor or / as agreed to between the Sub-Contractor and HAL based on competitive bidding, there should be close and continuous monitoring to ensure that the

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Sub-Contractor is not overloaded beyond the declared / agreed capacity after taking into consideration the mutually agreed delivery schedule. 38. RFQ should stipulate that reproduction of drawings / documents without written permission from the Division is an offence and prohibited. Divisions shall collect back drawings / documents from unsuccessful tenderers. Division may also consider entering into a Non-Disclosure Agreement (NDA) with the successful bidder in the case of assemblies of vital nature. 39. The Sub-contract Order shall clearly indicate the Part No., Description/ Specification, Drawing No. (latest issue), Quantity, Price, Delivery Schedule, Work Order No., and the bill of materials that will be provided by HAL ‘free of charge’ as well as those on chargeable basis. If possible, the order will also indicate the details of tools, gauges, Parts/sample supplied on returnable basis. The Production Engineering Dept. will provide assessment of the materials & the quantity required for executing each item and also indicates cutting and machining allowances. 40. In respect of assembly jobs, it is suggested to issue the materials in matching quantities (kits) to avoid delay in executing the order and to avoid inventory built-up at sub-contractor’s premises. 41. In the case of component sub-contract, once the component has been proved successfully, it is suggested to place orders for yearly requirement with staggered deliveries. If the requirement of the components exist on a continuous basis for a longer period, say 3-5 years, it is suggested to enter into Long Term Agreement with the same Sub-Contractor and repeat orders placed on the basis of base price (fixed for long term) with reduction considering the benefit of Learning and Technical assistance provided by Division. In exceptional cases, escalation to the base values may be agreed to, before the contract is finalized. 42. Division must take into account the benefits of long term relationship and nurturing such relationships, especially in case of items involving high development costs and areas where there is necessity for taking advantage of Sub-Contractor’s specialization and technical expertise. To the extent possible, fresh RFQ from the vendor should be avoided once the component has been proved successfully. 43. Divisions also need to widen sub-contractor base to cut costs and encourage competition between sub-contractors. Necessity for multiple sources, to reduce the risk associated with depending on a single subcontractor, is to be recognized and a well balanced approach is to be taken. 44. Divisions may firm up standard commercial terms & conditions with the Sub-Contractors at the placement of first order, to avoid repetition of the same every time while placing the orders on the same Sub-Contractors. 45. The primary contractor on whom HAL has placed the order should avoid involvement of other sub-contractors in executing the contract. Wherever it is inescapable for the primary sub-contractor to have another sub-contractor for technical reasons to be recorded, specific approval of the competent authority, who approved the contract, should be taken. The Division needs to assess and take a view, if the requirement of primary Sub-contractor to subcontract a part of the work to his sub-contractors, is necessary and acceptable keeping in view criticality of operations and ensuring that key operations are performed by primary sub-contractor. However, in such

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a case, the contract with primary sub-contractor must clearly state his responsibilities to quality and adherence to work procedures as defined by HAL as also guarantee for the work done. Material Supply: 46. As far as possible the Sub-Contractors shall be asked to quote the price for the tooling including the cost of materials. In cases where the materials required for tool manufacture will have to be supplied by HAL, the same would be based on HAL’s estimate and such HAL’s estimate for material including wastages will be binding on the part of the Sub-Contractor. Such material will be supplied against furnishing an Indemnity bond covering the cost of material in favour of HAL by the Sub-Contractor. The Sub-Contractor will also be required to take a comprehensive insurance policy covering all risks including fire, theft, damages / loss of material etc., while HAL’s supplied materials are in his custody and such Insurance Policies will be assigned to HAL. 47. In view of the nature and type of raw materials / items for airborne components / Assemblies, quantity required and to ensure quality, it may be necessary for the Division to supply the raw materials / items of correct specification in required quantities to the Sub-Contractor. Such issues shall be against indemnity bond / insurance cover. The Sub-contractor, in turn needs to ensure that the raw materials / items are classified as aeronautical (bonded) stores and are properly tagged and stored separately to avoid any mix-up with commercial materials. Division must also ensure that the raw material is accompanied by copies of route card, accepted raw material tag (process sheet in case of process developed in-house) etc. For monitoring of storage and consumption, periodic verification of quality of storage and quantity shall be carried out at the Sub-Contractor’s premises. Such verification shall be as often as considered adequate, but in all cases at least once in a year. Assistance to Sub-Contractor: 48. In view of the high quality and accuracies inherent in airborne components / items, Division needs to continuously inter-act with the Sub-Contractor for any assistance required with respect to technologies as well as Special Tools, Gauges etc. for manufacturing the components and provide the same, wherever considered necessary. A proper record of the Tools, Gauges etc supplied to the Sub-Contractor is to be kept and the items collected back once the job is completed. 49. Wherever the material has to be supplied by HAL, proper accounting system needs to be followed for costing, requisition, coding, accounting etc. In case material is supplied by HAL, the rejection allowances and recovery etc. shall be as under:

a) The maximum permissible rejection allowance shall be ____ (to be indicated by the respective Division, taking into account in-house norms). In case the rejection exceeds ___, the cost of raw materials rejected beyond ___ shall be recovered from the Sub-Contractor at prevailing market rate of materials supplied to Sub-Contractor. All rejected materials shall be returned to Divisions by the Sub-Contractor on FOR __________ Division basis. b) Should the Sub-contractor default for payment towards cost of rejection, the recovery will be affected by the Division from their other pending bills or

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otherwise invoking indemnity bond furnished by the Sub-Contractor. In such cases, no labour charges / conversion charges will be paid to the Sub-Contractor. c) Wherever inherent defects are noticed by the Sub-Contractor during machining of raw material and Sub-Contractor has promptly brought the same to the notice of HAL, the Sub-Contractor can be considered for compensation. The extent of compensation would be in terms of labour charges upto the stage of rejection. The labour charges need to be approved by the same CFA who had approved the original order after obtaining the concurrence of the appropriate Finance and based on certification of HAL inspector.

50. Further, in cases where Division procures the material for supply to vendor / sub-contractor, Division needs to avail the tax rebates / duty exemption available to HAL as a Defence Undertaking, wherever permissible. 51. As per the normal practice the transportation of raw material to subcontractor and finished goods to HAL shall be insured under the open policy to cover damage / loss in transit. Inspection and consequences of rejection 52. Inspection should be carried out preferably at Sub-Contractor’s works, and dispatch to HAL should be authorized only after carrying out necessary rectification if any. However, final inspection and acceptance will be at HAL premises only. 53. In case of any deviation, the Inspector shall prepare a report indicating the deviation observed. This shall be examined if required by a Committee consisting of representatives of Quality control, Production Planning, Design & Outsourcing Cell, as per the practice being followed at the Division. The Committee shall recommend the disposal as follows:

a) Accept item with deviation, if the deviation is minor and no re-work is required and interchangeability is not affected or

b) Re-work by HAL and charge the Sub-Contractor for the same. Approval

for rework cost may be accorded by the same CFA who had approved the original order after obtaining the concurrence of the appropriate finance. Outsourcing Cell shall advise the Accounts Department and the Sub-Contractor the cost details of rectification to be deducted from the Sub-Contractor’s bills.

iii) Return the item to Sub-Contractor for rectification and return back within

an agreed timeframe.

Bank Guarantee : 54. General Bank Guarantee: Outsourcing cell shall obtain General Bank Guarantee from the Sub-Contractor as under on yearly renewable basis:-

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Max. Value (in Rs.) of materials held with Sub- Value of Bank Contractor at any point of time during the year Guarantee (Rs)

(or value of material, Whichever is lower)

Upto 1,00,000 10,000 1,00,001 to 3,00,000 20,000 3,00,001 to10,00,000 30,000 Beyond 10,00,000 40,000

55. For the purpose of estimating the value of Bank guarantee, the value of materials is based on landed cost including cost of tools (supplied by HAL as well as fabricated by the Sub-contractor and paid by HAL), prototype / samples supplied on returnable basis. The costs need to be got coordinated by the Finance Deptt. 56. Since the value of the Bank Guarantee does not fully cover the cost of HAL supplied material, the value of materials issued to the Sub-Contractors would need to be regulated & monitored on a continuous basis to ensure that the materials are issued progressively against completion of orders and there is no excess stock left with the sub-contractors. Bank guarantee for advance. 57. Outsourcing cell shall obtain a bank guarantee from the Sub-Contractor for an amount equal to the advance made towards development work, fabrication of tools / components / subassembly etc., which shall be valid till the completion / supply of items Sub-contracted. Indemnity Bond 58. To cover the value of materials / other items to be supplied by the Division in excess of the Bank guarantee, the outsourcing cell shall obtain an indemnity bond from the Sub-Contractor valid till required finished items (manufactured out of the materials supplied) and balance if any are delivered to HAL. The indemnity bond shall be in favour of HAL. Insurance 59. The sub-Contractor shall take an insurance against loss / damage in favour of HAL for the value of materials supplied by HAL. Ancillary Units 60. Ancillary Units need not provide Bank Guarantee for materials. However, they should furnish indemnity bond and insurance as mentioned above. The Ancillary Units should also furnish necessary Bank Guarantee to cover the advance payment, if any. Monitoring : 61. Out-sourcing of tooling / components on sub contract basis shall be under the supervision and control of Sub-Contracting Cell of the Division. 62. Considering the stringent requirements and nature of aeronautical industry, Division shall fully support the Sub-Contractors during the initial stages. Division will also continuously interact with the Sub-Contractor for any assistance required with respect to

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technologies. Divisions will ensure that the tools, gauges etc., given to the Sub-Contractor by HAL are properly maintained / calibrated as per the quality requirement. 63. Division will continuously monitor the performance of each sub-contractor on Quality, Delivery, Price etc., and advise corrective action, wherever required. Persistent failure in timely delivery / quality compliance would entail cancellation of registration and same need to be informed to the subcontractor and as well as other Divisions. Reporting and Assessment of Sub-Contracting Activit ies 64. Outsourcing Cell will submit a Quarterly report to the Head of the Division, highlighting the details of extent of Sub-Contracting done with each Sub-Contractor in terms of nature of job, extent of Hours loaded, pending jobs & performance of Sub-Contractor. 65. Savings from sub-contracting can not be separately identified as income. Therefore, the savings should be worked out, on monthly basis and reported, as per guidelines to be issued separately by Corporate Office Finance. Note:- [For all above annexure details I to IV, kindly refe r the letter mentioned

below]

( Letter No. HAL/CD/552[I]/2007; dated 14 th Feb 2007)

TENDERING

4. NOTICE INVITING TENDERS

4.1 Anti-Corruption Work - Tender Enquiries Reference is made to Circular No HAL/CO/VIG/47/2000/86 dated 27 Jan 2000 issued by ED (V). 2. ED (Vig) has also clarified that in order to provide level playing field to both categories i.e., local and outside vendors/contractors and to avoid any scope for complaints, Tender enquiries/documents are sent only through Registered Post Acknowledgement Due. 3. Further, utilization of courier services may also be resorted to for forwarding tenders under exceptional circumstances rather than routine. The receipt obtained from the vendor by the courier service should be collected and filled in the relevant enquiry file. 4. The above instructions would be applicable for obtaining quotations for Civil Woks etc., also and should be strictly complied with.

(CD/616(F)/2000/1397 dated 28 th Feb 2000) 4.2 Notice inviting tenders The Commission has observed that some of the Notice Inviting Tenders (NITs) have a clause that the tender applications could be rejected without assigning any reason. This clause is apparently incorporated in tender enquiries to safeguard the

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interest of the organization in exceptional circumstance and to avoid any legal dispute, in such cases. 2. The Commission has discussed the issue and it is emphasized that the above clause in the bid document does not mean that the tender accepting authority is free to take decision in an arbitrary manner. He is bound to record clear, logical reasons for any such action of rejection/recall of tenders on the file. 3. This should be noted for compliance by all tender accepting authorities.

(OFF-1-CTE-1(Pt) V Dated the 24 th Mar 2005) 4.3 Consideration of the quotations received against RF Q - regarding

In the context of review of proposals referred to Corporate Office for approval, it is observed that there is a need for uniformity in the procedure in dealing with the quotations received from the vendors including the quotes received through Fax and E-mails to ensure transparency in the process. Following guidelines are issued for processing the case in this regard

i) Due Date For Submission Of Response:- It is essential to indicate the designated date and time for receipt of tenders in the RFQ and the vendor is requested to reproduce the same in the response to the RFQ. It may be clarified in the RFQ that the tenders which are received after designated date and time shall be liable for rejection. Any tender which is received beyond the designated date and time shall be automatically notified to the Head of Department and the same should be processed in accordance with the instruction vide commercial circular No. 24 dated 03-07-2003

ii) Quotations Received Through Fax / E-Mail:- Guidelines have already been issued vide Letter No. HAL/CD/701-A/2000/480; dated 10.05.2000 regarding the acceptance of quotation through FAX / E-mail, compliance of this needs to be ensured. In addition, it is suggested that after opening of the tender and preparation of the comparative statement, the fact of receipt of quotation through Fax or E-mail is disclosed specifically in the case of L1 tenderer.

iii) Evaluation Of The Offers In Different Foreign Curre ncies:-

a) The foreign exchange rates to be adopted for conversion of the quotes in foreign currency by various vendors shall be the rate valid on the date of the opening of the tender. This rate shall be the TT selling rate as published in the leading newspapers such as Financial Express and the Economic times.

b) The paper clipping should be placed in the file as a back-up document. c) Should there be a considerable time gap in the date of preparation of the comparative statement and submission of the proposal to the Competent Authority for approval, during which there has been movement in the foreign exchange which is likely to affect the determination of the CFA, the rate of Foreign exchange as at the time of preparation of the case for CFA’s approval shall be considered in respect of the selected party. The backup for the rates as indicated above should be placed in the file.

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d) In case of necessity where Exchange rate in Indian rupees is not available for a particular Foreign Currency, the cross currency rates as published in the newspaper could be used to convert the foreign currency for which exchange rate in rupees is not available to another currency for which the exchange rate in rupees is available. If this is not feasible, the exchange rate could be ascertained from the Bank.

( DE/100-28/08/212 Dated 9 th Jun 2008)

4.4 Irregularities Noticed By Chief Technical Examiner (CTE) During Inviting And Opening Of Tenders

1. The CTE during the course of Intensive Examination of one of the Division of HAL had observed the following lapse:

a) Time of submission of bids was not indicated in the tender enquiry (RFQ). Further, Date and time of opening of bids was also not indicated. The technical bids were also not opened in presence of bidder’s representatives. It was observed by the CTE that in these time of openness and transparency, HAL is following a procedure which is totally non-transparent, highly objectionable and against the sanctity of tender of tender system as there is every possibility of tampering with and interpolation offers and advised CVO to look into this aspect and ensure that a proper system is put in place and adhered to for handling of tenders in a transparent manner.

2. HAL Purchase Manual, chapter – V Para 5.1 and Chapter-VII, Para 7.3 is very clear regarding the tender opening system and other related aspects. The provisions of the Purchase Manual are reiterated below:

Chapter – V, Para – 5.1

(i) All requests for quotations / tender enquiry must specify “Last date for submission of quotes”. The tender must also state “Tenders received after due date and time shall not be opened and shall not be considered”. This should be prominently mentioned in the tender enquiry. In cases where bidders representative are required to be offered to witness the tender opening, date and time of opening of tender shall also be mentioned in tender / enquiry.

Two Bid System: In this system, the firms are requested to give two separate offers both in sealed covers. It is explained to the vendors that both the offers will be exactly the same, except the offer NO. 1 will have all prices / rates / values blanked out and will be called technical bid. The offer No. 2 will be commercial / complete bid including the prices. Each bid will be put in a separate sealed covers, each marked with tender number due date and as technical bid or commercial bid as the case may be. Both the sealed covers will be put in a single cover, which will be again sealed and super scribed with tender number and due date. On opening date, only the technical bids are opened in the presence of the representatives of the firms, who have quoted and chose to be present. The offer No. 2 (Commercial Bid) will be opened only after technical bids are technically evaluated. The commercial bid of only those firms, whose technical bids are found to be technically acceptable will be opened with due notice to be present for opening, if they chose to.

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Chapter – VII, Para – 7.3

a) Authorized suppliers or their agents who submit tenders are permitted to witness the tender opening. A record of the tenderers / agents present at the tender opening should be maintained. The officer opening the tender shall read out the important particulars regarding quality, price, etc. and shall prepare an abstract of the tenders received.

b) No amendments to the tenders shall on any account be permitted after the opening of the tenders has commenced. Further, in case two bid system, after opening of the technical bids, the price bids, which are to be opened subsequently, will not be kept as loose envelopes. It is to be ensured that the tender opening officer / committee has signed on the envelopes and the envelopes are placed in a bigger envelope / box duly sealed and signed by the tender opening officer / committee.

4. Further, in view of CVC guidelines, all the NIT (Open/Limited) pertaining to Stores/Purchase and Contracts to be hosted on HAL web-site.

(HAL/CO/VIG/47/2008/272 dated 19 th Mar 2008)

4.5 Acceptance Of Quotations Through Fax/E-Mail Etc. Corporate Office had issued guidelines vide letter No HAL/CD/701-A/ 2000 dated 10 May 2000 detailing the procedures to be followed in the case of quotations if received by fax / e-mail etc.

Vigilance Dept has carried out a “System Study on Tender responses from

vendors received by Fax/E-mail and other Electronic Media” and have brought out a number of observations which are not in line with the prevailing guidelines/ CO directives.

a) The process of handling tender response received via Fax/E-Mail needs to be properly regulated, monitored and accounted. The CO guidelines in this regard needs to be followed in letter and spirit, to have a system of accountability.

b) Discourage Fax/E-mail quotations in limited tender cases. Only in case of

procurement from proprietary manufacturers and single developed sources, the vendors may be given this option to avoid delays to meet emergency requirement; Quotations through Fax/E-Mail may be resorted to only after obtaining approval from Competent Financial Authority (CFA) with proper justification. Fax/E-mail quotations are to be accepted only in exceptional cases and not as a matter of routine.

c) Receipt of quotations should be restricted to only the FAX machine installed /

dedicated in the Head of Dept (HOD) of IMM/Purchase. GM’s Office Fax Machine can be used only in case of exigencies, with proper justification and recordings. RFQ should invariably have the exclusive Fax No of the Fax Machine kept in the Office of the HOD IMM/Purchase.

d) The IMM/Purchase Dept should create an exclusive official E-Mail ID with

adequate mailbox capacity for receiving quotations, which should be

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invariably mentioned in all the Tender Enquiries (RFQs) with a special note (Ref Annexure-A). For general correspondence, other than submission of quotations, a separate e-mail to be created and mentioned in all the tender enquiries. The e-mail IDs to be “password” protected and should be changed frequently to ensure information security. Official Fax No/E-Mail ID should be made available on the website.

e) Too many officials accessing tenders received via fax/e-mail should be

regulated immediately. A Three Member Committee from Purchase/IMM and Finance (or any other Dept) de-facto headed by the IMM/Purchase HOD should be constituted. The Committee (on daily basis) should be responsible for downloading of quotations, making entries in the register, putting them in envelop, superscribing with the Enquiry Ref No with due date, time and date of receipt of the quotation and thereafter putting it to the HOD of IMM/ Purchase Dept for countersignature and finally dropping it in the tender box. An employee of IMM/Purchase Dept can be nominated for assisting the job. The Committee should also handle the quotations received through Fax. The Committee members should be responsible and accountable for maintaining confidentiality. Only designated/ authorized officers/workmen should have access to the quotations received through Fax/E-Mail. Random selection and frequent rotation of committee members and assistants should be done on periodical basis. A record should be maintained on accessing of E-Mails as per format given at Annexure-B.

f) A proper record of the quotations received via Fax/E-Mail needs to be

maintained before the same is dropped in the tender box. Pages of Fax/E-mail Register should be serially numbered and properly authenticated by the HOD in the beginning of the register. (Format of Register is given as Annexure-C).

g) Quotations through Fax/E-mail should be received at a single point/ place. It

is necessary to install the Computer Terminal with Internet connection, Fax Machine in a separate enclosure / room. Fax Machines connected to computer system for uploading of fax messages into the system by default/automatically can be explored. Access to the Fax/Computer Room/enclosure should be strictly controlled with entry only for authorized persons.

h) Accessing the E-mail ID / Mail Box for receiving quotations from a system

other than the one installed in Fax Room should not be permitted. In case the Mail Box is accessed from any other system due to reasons like system or internet connection failure, the same should be clearly recorded in the “Remarks” column of the Register. In all such cases, ensuring proper accounting and confidentiality of quotations will be the responsibility of Committee Members.

i) In case of quotations received as an attachment to the E-Mail messages, print

of both the attachment and E-mail should be put together in the sealed envelope. In case of receipt of illegible Fax quotations, the vendor should be contacted and directed to re-send the quotation. Both the quotations should be countersigned by the HOD of IMM/Purchase Dept and before dropping it in the tender box, the committee members should clearly record the fact in the “Remarks” column of the Register.

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j) Mail box should be opened on all working days and print out reflecting the number of mails received, sender of the mail, subject of the mail, date and receipt of the mail etc should be taken and proper records of these print outs should be maintained in a folder. Print out of all the mails received in the inbox should invariably be taken. Downloading/copying of quotations to hard disk of the system or to any other media like floppy, CD etc should not be permitted. In order to create space for new quotations, once a hard copy of the quotation has been taken, then it should be immediately deleted from the mailbox or a methodology for retention of data for a specified time frame can be explored. The deletion should be recorded in a register. Format given at Annexure-D.

Divisions are directed to take note of and ensure strict compliance with the above recommendations.

Annexure - A

Incorporation for Tender Enquiries / RFQs

Special Note: Please submit your quotations with RFQ reference and due date superscribed on the cover on or before closing date by _____ hrs. Kindly note that HAL does not entertain Fax/E-Mail Quotations unless otherwise specifically requested by us in our RFQ. In exigencies and in exceptional cases, the tenders can submit the quotation either through Fax or E-mail on the following Fax Nos / E-mail ID only. Quotations sent on any other Fax/E-mail IDs will not be considered and deemed to be an invalid quote. Fax No ___________ E-Mail ID _________________ For general correspondence other than submission of quotations kindly make use of the (Fax No ___________ E-Mail ID _________________)

Annexure-B Sl No Date/Time

of Receipt E-Mail/ Fax

Name of vendor/ firm

Tender enquiry No

Remarks Signature of tender handling Officer/ Employee

Annexure – C

Sample Format for Access Record Register Sl No Date/Time Name of the

Officer Details of RFQs downloaded

Signature of the Officer

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Annexure – D

Sample Format for E-mail Deletion Record Register Sl No Date/Time Name of the

Officer Details of RFQs Deleted

Signature of the Officer

( HAL/CD/616(F)/2008 dated 10th Nov 2008)

5. CONSULTANTS

5.1 Appointment Of Consultants

Guidelines in connection with the selection of consultants by public sector enterprises for preparation of project reports have been laid down by Bureau of Public Enterprises vide letter No BPE/GL-028/78/Prodn/PCR/2/77/BPE/Prodn dated 15 Jul 1978. The guidelines in brief are laid down as under:-

a) For any new projects, expansions, authorized /modification of the existing projects involving an expenditure of Rs 5 crore and above these guidelines are applicable.

b) The pre-qualification public notice should be issued to enlist names of suitable consultants.

c) The pre-qualification bid should be screened by a screening committee.

d) The final selection and Commissioning of the consultant should be done with the approval of the board of public sector enterprise.

e) Based on the above guidelines each enterprise should prepare their won instructions and procedure duly approved by the board for the appointment of consultants to ensure that the selection is made with maximum consideration to their suitability competence and proven experience.

The Chief Technical Examiner’s Organisation under the control of the Commission has had occasion to examine and comment upon works undertaken by public sector undertakings. Common irregularities/lapses noticed in the construction works undertaken by the public sector undertakings/banks have already brought to your notice vide Commission’s letter No 3L PRC 1 dt 12 Nov 82. During examination of engineering works it was observed that consultants were appointed on ad-hoc basis without going through proper formalities as suggested by BPE and / or the consultant was chosen from a old panel thereby restricting competition. In most of the cases public sector enterprises have not framed their own instructions and procedures duly approved by the board.

Even though individually such works are less than Rs 5 crores it is necessary that the appointment of consultant should not be made arbitrary or adhoc.

It is, therefore, necessary that urgent action is taken to formulate a rational policy

for employment of consultants based on the broad outlines given by BPE.

(CVC (CTE’s Organization letter No 3L PRC 1 dated 1 0th Jan 1983)

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5.2 Appointment of Consultants

While highlighting the common lapses/ irregularities observed in the Construction works undertaken by the PSUs/Banks, under the guidance of Consultants, the Commission had issued certain guidelines vide letter No. 3L PRC 1 dated 12.11.1982 [ copy enclosed-Annexure-1] so as to avoid recurrence of such lapses. These were further emphasized vide letter No. 3L-IRC-1 dated 10.1.1983 [copy enclosed-Annexure-II], inter-alia, bringing out the guidelines circulated by the Bureau of Public Enterprises in their letter no. DPE/GL- 025/78/Prodn./PCR/2/77/BPE/Prodn. Dated 15.07.1978 and it was reiterated that the appointment of Consultants should be made in a transparent manner. 2. However, it has been observed during intensive examination of various works/contracts by the CTEO that these instructions are not being followed by a large number of organizations. The consultants are still appointed in an ad-hoc and arbitrary manner without inviting tenders and without collecting adequate data about their performance, capability and experience. In some cases, the consultants were appointed after holding direct discussions with only one firm without clearly indicating the job content and consultation fee payable to them. Often the scope of work entrusted to the consultants is either not defined property or the consultants are given a free hand to handle the case due to which they experiment with impractical, fanciful and exotic ideas resulting in unwarranted costs. The organizations display an over-dependence on consultants and invariably abdicate their responsibility completely to the latter. The officials do not over see the working of the consultants resulting in the latter exploiting the circumstances and at times, in collusion with the contractors, give biased recommendations in favour of a particular firm. It has also been noticed that the consultants recommend acceptance of inferior items/equipments / payment for inadmissible items and also give undue benefit to the contractors like non-recovery of penalties for the delayed completion. The position in respect of projects with multiple consultants is still worse as the self-interest of so many outside agencies takes precedence over the loyalty towards the organization. These agencies tend to collude or collide with each other, and both the situations are detrimental to the smooth implementation of the project. 3. Some of the common irregularities/lapses observed during the last four years or so in this regard are highlighted as under:-

i) One organization engaged architect from a very old panel, prepared about 15 years back.

ii) An organization invited and short-listed 5 consultants but awarded the contract to the highest bidder on the plea that the bidder had done a very good job in some other project with the organization. Extra amount of account of travel expenses, boarding and lodging was also sanctioned beyond contractual terms.

iii) A bank for construction of its Head Office in Mumbai, shortlisted three firms after a thorough scrutiny of offers submitted by a large number of bidders. The price bids of these firms were opened, but in a surprising manner, the work of consultancy was awarded to an L-2 firm thus compromising all ethics of tendering.

iv) The payment terms to the contractors are often allowed quite liberally. In one case, the consultant’s fee was paid on quarterly basis without linking the same with the progress of the project. Full payments had been authorized even

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before the completion of the project. In another work, the consultants were paid substantial amount at an early stage of the project though they had submitted only preliminary drawings. Subsequently, the consultants failed to complete the job and the department took no action against them. In yet another case, the consultant was allowed extra payment for additional documents that he had to generate due to retendering of the case. However, the reasons for re-tendering were found attributable to the consultants and instead of penalizing; they were rewarded with extra payment. v) The consultants tend to increase the cost of the work for more fees as generally the fee of the consultants is fixed at a certain percentage of the final cost of project. In an office building work, tender was accepted for Rs.10.00 crores but during execution, specifications were changed and actual cost on completion was twice the tendered cost. Thus, the consultant was unduly benefited as there was no maximum limit fixed for the consultant’s fee. vi) In the consultancy agreement generally the nature of repetitive type of work is not defined. In one work, 4 similar blocks comprising of 100 hostel rooms each were constructed. The consultants were paid same standard fees for each block. Due to this, the organization suffered loss at the cost of the consultant. vii) There is no check on consultant’s planning, design and execution. In one work, pile foundation for a workshop building was designed with the capacity of the piles, capable of carrying twice the required load. In the same project, high capacity piles (450 mm Dia, 20 m deep) were provided for a single-storeyed ordinary office building, which did not require pile foundation at all. viii) In another case, the project was for a design and construction of a training institute on a big plot of land in a very posh and expensive area. The whole construction was two storeyed with no scope for future expansion ironically all other buildings in the vicinity are multi-storeyed highlighting the fact that space utilization here was very poor. Further, the walls in the reception area and on the outside of the auditorium were provided with acoustic insulation with no rationale. For air-conditioning of the library instead of providing a single AHU of suitable capacity with ducting, etc. 20 plus AHUs had been provided in the room. Such fanciful ideas along with poor planning and supervision resulted in the project suffering heavy cost and time overruns. In one of the works for a bank in Mumbai, the substation equipment has been installed in the basement area, jeopardizing the safety aspect, as Mumbai gets its fair share of heavy rains and the area is also in close proximity to the sea.

4. In many cases, the consultants charge exorbitant traveling expenses. For a work in Punjab, Mumbai based Architects were appointed. The fee payable to them was Rs.6.00 lakhs, but the actual traveling expenses ultimately paid to them were to the tune of Rs.7.5 lakhs.

a) Sometimes the consultants pass on their responsibility to the contractor. In one work, the consultant was supposed to give design ad drawing as per the consultancy agreement. While preparing the tender document for construction work, the responsibility for the preparation of drawings and structural design was entrusted with the construction contractor by adding a condition to that effect. The contractors loaded the quoted rates for the above work and the consultant was benefited at the cost of the organization.

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b) In case of road projects, it was observed that consultants under different categories like general consultants, planning & design consultants and construction management consultants were appointed for almost all the activities of the projects without competitive bidding. The work done by the consultants is not checked by the departmental engineers who feel their job is mainly to issue cheques to the consultants/ contractors.

5. The above list is only illustrative and not exhaustive. The Commission would like to reiterate the instructions regarding appointment of consultants. The appointment of consultants should be absolutely need based and for specialized jobs only. The selection of consultants should be made in a transparent manner through competitive bidding. The scope of work and role of consultants should be clearly defined and the contract should incorporate clauses having adequate provisions for penalizing the consultants in case of defaults by them at any stage of the project including delays attributable to the consultants. As far as possible a Project Implementation Schedule indicating maximum permissible time for each activity should be prepared with a view to arrest time overruns of the projects. There should be no major deviation in the scope of work after the contract is awarded and the consultant should be penalized for poor planning and supervision if the deviations result in excessive cost overruns. Further, the consultant’s fee should be pegged based on the original contract value. The role of the consultants should be advisory and recommendatory and final authority and responsibility should be with the departmental officers only. It is suggested that these instructions may be circulated amongst the concerned officials of your organization for guidance in appointment/working of consultants in the engineering works/contracts. These instructions are also available on CVC’s web site, http://cvc.nic.in

( No..OFF 1 CTE 1 Dt. The 25 TH Nov 2002)

5.3 Participation of consultants in tender- guidelines regarding. Consultants are appointed by the authorized for preparation of project report. These appointments are made for any new projects, expansions, modernization/ modification of the existing projects etc. The selection is made with maximum attention to the suitability, competence and proven track record . 2. Further, during the CVO’s Conference convened by the Commission in Sept.1997, the Central Vigilance Commissioner had constituted a Committee of CVOs to go into the system of contracts prevalent in PSUs and to suggest, wherever required, methods of streamlining the contracting provisions. The Committee after going through the contract system of various organizations had made recommendations on consultants as under:-

Consultants : - A firm which has been engaged by the PSU to provide goods or works for a project and any of its affiliates will be disqualified from providing consulting services for the same project . Conversely, a firm hired to provide consulting services for the preparation or implementation of a project, and any of its affiliates, will be disqualifie d from subsequently providing goods or works or services related to the initial assignment for the same project. Consultants or any or their affiliates will not be hired for any assignment, which by its nature, may be in conflict with another assignment of the consultants.

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3. It has come to the notice of the Commission that in a tendering process of a PSU, the consultant was also permitted to quote for work for which they had themselves estimated the rates and the consultant quoted 20% above their own estimated rates as against the awarded rates which were 20% below the estimated cost. Such over dependence on the consultant can lead to wasteful and infructuous expenditure which the authorized regrets in the long run. Meticulous and intelligent examination of the consultant’s proposal is therefore essential for successful and viable completion of the project. 4. The Commission reiterates the recommendations made by the Committee that the consultants/firm hired to provide consulting services for the preparation or implementation of a project, and any of its affiliates, will be disqualified from subsequently providing goods or works or services r elated to the initial assignment for the same project.

(98/DSP/3 Dated 24 th Dec 2004) 6. Mobilization Advance 6.1 Mobilization Advance In order to address the problem of misuse of mobilization advance provision in the civil and other works, the Commission had issued an O.M. dated 8.12.1997 for grant of interest bearing ‘Mobilization Advance’ in selected works. In view of references from certain organizations on this issue, the Commission has reviewed the issue and it has been decided to modify and add the following provisions in the existing O.M. This may be read as addendum to the Commission’s O.M. dt.8.12.1997.

If the advance is to be given, it should be expressly stated in the NIT/Bid Documents, indicating the amount, rate of interest and submission of BG of equivalent amount.

The advance payment may be released in stages depending upon the progress

of the work and mobilization of required equipments etc. There should be a provision in the contract for adjustment of advance

progressively even as the bills are cleared for payment.

( No.4CC-1-CTE-2 Dated 08 th Jun 2004) 6.2 Mobilization Advance. Commission has reviewed the existing guidelines on ‘Mobilization Advance’ issued vide OM No.UU/POL/18 dt 08.12.97 and OM No.4CC-1-CTE-2 dt 08.6.04. The following guidelines are issued in supercession of earlier guidelines issued by the Commission on ‘Mobilization Advance’:- 1. Provision of mobilization advance should essentially be need-based. Decision to provide such advance should rest at the level of Board (with concurrence of Finance) in the organization.

2. Though the Commission does not encourage interest free mobilization advance, but, if the Management feels it necessity in specific cases then it should be clearly

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stipulated in the tender document and its recovery should be time based not linked with progress of work. This would ensure that even if the contractor is not executing the work or executing it at a slow pace, recovery of advance could commence and scope for misuse of such advance could be reduced.

3. Part ‘Bank Guarantees’ (BGs) against the mobilization advance should be taken in as many numbers as the proposed recovery installments and should be equivalent to the amount of each installment. This would ensure that at any point of time even if the contractor’s money on account of work done is not available with the organization, recovery of such advance could be ensured by encashing the BG for the work supposed to be completed within a particular period of time.

4. There should be a clear stipulation of interest to be charged on delayed recoveries either due to the late submission of bill by the contractor or any other reason besides the reason giving rise to the encashment of BG, as stated above.

5. The amount of mobilization advance, interest to be charged, if any; its recovery schedule and any other relevant detail should be explicitly stipulated in the tendered document upfront.

6. Relevant format for BG should be provided in the tender document, which should be enforced strictly and authenticity of such BGs should also be invariably verified from the issuing bank, confidentially and independently by the organization.

7. In case of ‘Machinery and Equipment advance’, insurance and hypothecation to the employer should be ensured.

8. Utilization certificate from the contractor for the mob advance should be obtained. Preferably, mob adv should be given in installments and subsequent installments should be released after getting satisfactory utilization certificate from the contractor for the earlier installment.

( No.4CC-1-CTE-2 Dated 10 th Apr 2007) 6.3 Corrigendum

Circular No. 5/2/08 Mobilization Advance

The commission has reviewed the existing guidelines on Mobilization advance Circular No. 10/4/07 [issued vide OM No. 4CC-1-CTE-2; dated 10-04-07]. Para 1 of the above circular ma be read as under

“Decision to stipulate free mobilization advance in the tender document should rest at the level of Board [with concurrence of Finance] in the organizations. However in case of interest bearing mobilization advance, organizations may delegate powers at appropriate levels such as the CMD or Functional Directors

(No.4CC-1-CTE-2 Dated 05 th Feb 2008)

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7. GUIDELINES ON TENDERING SYSTEM

7.1 Pre-qualification criteria (PQ) The Commission has received complaints regarding discriminatory prequalification criteria incorporated in the tender documents by various Deptts./Organizations. It has also been observed during intensive examination of various works/contracts by CTEO that the prequalification criteria is either not clearly specified or made very stringent/very lax to restrict/facilitate the entry of bidders. 2. The prequalification criteria is a yardstick to allow or disallow the firms to participate in the bids. A vaguely defined PQ criteria results in stalling the process of finalizing the contract or award of the contract in a non-transparent manner. It has been noticed that organizations, at times pick up the PQ criteria from some similar work executed in the past, without appropriately amending the different parameters according to the requirements of the present work. Very often it is seen that only contractors known to the officials of the organization and to the Architects are placed on the select list. This system gives considerable scope for malpractices, favouritism and corruption. It is, therefore, necessary to fix in advance the minimum qualification, experience and number of similar works of a minimum magnitude satisfactorily executed in terms of quality and period of execution. 3. Some of the common irregularities/lapses observed in this regard are highlighted as under:

i) For a work with an estimated cost of Rs. 15 crores to be completed in two years, the criteria for average turnover in the last 5 years was kept as Rs.15 crores although the amount of work to be executed in one year was only Rs. 7.5 crores. The above resulted in prequalification of a single firm. ii) One organization for purchase of Computer hardware kept the criteria for financial annual turnover of Rs.100 crores although the value of purchase was less than Rs.10 crores, resulting in disqualification of reputed computer firms. iii) In one case of purchase of Computer hardware, the prequalification criteria stipulated was that the firms should have made profit in the last two years and should possess ISO Certification. It resulted in disqualification of reputed vendors including a PSU. iv) In a work for supply and installation of A. C. Plant, retendering was resorted to with diluted prequalification criteria without adequate justification, to favour selection of a particular firm. v) An organization invited tenders for hiring of D.G. Sets with eligibility of having 3 years experience in supplying D.G. Sets. The cut off dates regarding work experience were not clearly indicated. The above resulted in qualification of firms which had conducted such business for 3 years, some 20 years back. On account of this vague condition, some firms that were currently not even in the business were also qualified. vi) In many cases, “Similar works” is not clearly defined in the tender documents. In one such case, the supply and installation of A. C. ducting and the work of installation of false ceiling were combined together. Such works are normally not executed together as A. C. ducting work is normally executed as a

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part of A. C. work while false ceiling work is a part of civil construction or interior design works. Therefore, no firm can possibly qualify for such work with experience of similar work. The above resulted in qualification of A. C. Contractors without having any experience of false ceiling work although the major portion of the work constituted false ceiling work.

4. The above list is illustrative and not exhaustive. While framing the prequalification criteria, the end purpose of doing so should be kept in view. The purpose of any selection procedure is to attract the participation of reputed and capable firms with proper track records. The PQ conditions should be exhaustive, yet specific. The factors that may be kept in view while framing the PQ Criteria includes the scope and nature of work, experience of firms in the same field and financial soundness of firms. 5. The following points must be kept in view while fixing the eligibility criteria:- For Civil/Electrical Works

i) Average Annual financial turnover during the last 3 years , ending 31st March of the previous financial year , should be at least 30% of the estimated cost. ii) Experience of having successfully completed similar works during last 7 years ending last day of month previous to the one in which applications are invited should be either of the following: -

a. Three similar completed works costing not less than the amount equal to 40% of the estimated cost.

Or b. Two similar completed works costing not less than the amount equal to 50% of the estimated cost.

Or c. One similar completed work costing not less than the amount equal to 80% of the estimated cost .

iii) Definition of “similar work” should be clearly defined.

In addition to above, the criteria regarding satisfactory performance of works,

personnel, establishment, plant, equipment etc. may be incorporated according to the requirement of the Project. For Store/Purchase Contract Prequalification/Post Qualification shall be based entirely upon the capability and resources of proactive bidders to perform the particular contract satisfactorily, taking into account their

(i) experience and past performance on similar cont racts for last 2 years (ii) capabilities with respect to personnel, equipm ent and manufacturing facilities (iii) financial standing through latest I.T.C.C., Annual report (balance sheet and Profit & Loss Account) of last 3 years.

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The quantity, delivery and value requirement shall be kept in view, while fixing the PQ criteria . No bidder should be denied prequalification/post qualification for reasons unrelated to its capability and resources to successfully perform the contract.

It is suggested that these instructions may be circulated amongst the concerned officials of your organization for guidance in fixing prequalification criteria. These instructions are also available on CVC’s website, http://cvc.nic.in.

(No. 12-02-1-CTE-6 Dated 17 th Dec 2002)

7.2 Tender Sample Clause

The Commission has received complaints that some Organizations, while procuring clothing and other textile items insist on submission of a tender sample by the bidders though detailed specifications for such items exist. The offers are rejected on the basis of tender samples not confirming to the requirements of feel, finish and workmanship as per the ‘Master Sample’ through the bidders confirm in their bids that supply shall be made as per tender specifications, stipulated in the bid documents. While it is recognized that samples may be required to be approved to provide a basis respect of indeterminable parameters such as shade feel, finish & workmanship for supplies of such items but system of approving/rejecting tender samples at the time of decision making is too subjective and is not considered suitable, especially for items which have detailed specifications. The lack of competition in such cases is also likely to result in award of contracts at high rates. It is thus advised that Government Departments/Organizations should consider procurement of such items on the basis of detailed specifications. If required, provision for submission of an advance sample by successful bidder (s) may be stipulated for indeterminable parameters such as, shade/tone, size, make-up, feel, finish and workmanship, before giving clearance for bulk production of the supply. Such a system would not only avoid subjectivity at the tender decision stage but would also ensure healthy competition among bidders and thus take care of quality aspect as well as reasonableness of prices. It is requested that these guidelines may be circulated amongst the concerned officials of your organization for guidance. These are also available on the CVC web-site, http://cvc.nic.in

(No.2EE-1-CTE-3 Dated – 15 th Oct 2003)

7.3 Back to Back Tie up by PSUs- instructions regarding

It has been observed during intensive examination of various works/contracts awarded by construction PSUs on back to back basis that the works are being awarded in an ad-hoc and arbitrary manner without inviting tenders and ascertaining the performance, capability and experience of the tenderers. In some cases, the works were awarded on single tender basis/limited tender basis though sufficient time was available with the Organisation to invite open tenders. 2. Some of the common irregularities/lapses observed during the examination of works were as under:

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a) No transparency in selection of contractor for the back to back tie up which is the main source of corruption. b) Collusion among the contractors was observed where more than one contractor was involved at various stages. c) Ineligible contractor obtains the contract through the PSUs. d) Purchase preference misused by the PSUs. e) PSUs sublet the complete work to a private contractor without obtaining permission from the client which invariably put a condition insisting such permission since the client is generally not interested in such back to back sublet of the work. f) Infructuous work (to the exchequer) due to the involvement of intermediary PSUs and cost of project goes up ultimately. g) No supervision by the PSU as they put the staff mainly for coordination work. h) Quality ultimately suffers due to lack of supervision by the PSUs.

3. Commission is of the view that the practice of award of works to PSUs on nomination basis by Govt. of India/PSUs needs to be reviewed forthwith. 4. The irregularities observed during intensive examination of work and difficulties being faced by the PSUs in inviting tenders were considered and it has been decided that the procedure to be followed for award of work by Construction PSUs shall be authorized by taking into account the following points:

a) PSUs (when bag the contract from the client Department) as a contractor, has to execute the work by functioning like a contractor instead of sub-letting the 100% work on back to back basis. b) Open tenders to be invited for selection of sub-contractors as far as possible. c) In case, it is not possible to invite open tenders, selection should be carried out by inviting limited tenders from the panel approved in the following manner. Panel of contractors are to be prepared for different categories monetary limits, regions, in a transparent manner clearly publishing the eligibility criteria etc. The above panel is to be updated every year. d) Tenders to be opened confidentially by a high level committee to maintain the secrecy of rates, if required. Tender opening register should be maintained in this regard duly signed by the officers opening the tender and kept confidentially. This should be available for perusal when required by audit/ vigilance. e) The terms and conditions of the contract of the client especially those pertaining to subletting of works should be strictly adhered to by the PSUs. f) Adequate staff to be deployed by the PSUs to ensure quality in construction etc.

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g) The record of enlistment/updation of contractor and tender opening register shall be produced to the CTEO as well as audit officials when demanded for scrutiny.

h) It is, therefore, suggested that the procedure for award of work on back to back basis be authorized by keeping in view the above points and circulated amongst the concerned officials of your authorized for strict compliance in future works.

(No. 06-03-02-CTE-34 Dated 20 th Oct 2003)

7.4 Pre-qualification Criteria (PQ) Guidelines were prescribed in this office OM of even number dated 17/12/2002, on the above-cited subject to ensure that the pre-qualification criteria specified in the tender document should neither be made very stringent nor very lax to restrict/facilitate the entry of bidders . It is clarified that the guidelines issued are illustrative and the organizations may suitably modify these guidelines for specialized jobs/works, if considered necessary. However, it should be ensured that the PQ criteria are exhaustive , yet specific and there is fair competition. It should also be ensured that the PQ criteria are clearly stipulated in unambiguous t erms in the bid documents.

(12-02-1-CTE-6 Dated 7 th May 2004)

7.5 Transparency in tendering system- Guidelines regard ing. In order to maintain transparency and fairness, it would be appropriate that authorized should evolve a practice of finalizing the acceptability of the bidding firms in respect of the qualifying criteria before or during holding technical negotiations with him. Obtaining revised price bids from the firms, which do not meet the qualification criteria, would be incorrect. Therefore the exercise of short listing of the qualifying firms must be completed prior to seeking the revised price bids. Moreover, the intimation of rejection to the firms whose bids have been evaluated but found not to meet the qualification criteria, along with the return of the un-opened price bid, will enhance transparency and plug the loop-holes in the tendering system. All authorized departments are advised to frame a policy accordingly.

( No.004/ORD/9 Dated 10 th Dec 2004)

7.6 EMD - Circular No. 32 The following guidelines are to be observed while calling for Earnest Money Deposit –

(a) Earnest Money Deposit (EMD) shall be specified in all cases of Open Tender. (b) The EMD to be charged shall be a fixed amount, based on estimated value of

stores as follows:

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EMD Estimated value of Tendered Equipment

Indian Rs. lakhs

Foreign US$

Rs. 1 – 25 Lakhs 0.20 400 Rs. 25 -50 Lakhs 0.40 800

Rs. 50 -100 Lakhs 0.75 1500 Rs. 100 -250 Lakhs 1.75 3500

Rs, 250 Lakhs and above 3.00 6000 *may be rounded to nearest $10, depending upon exchange rate. (c) For tenders of the value of rupees one lakh or less, EMD need not be called

for. (d) The tender documents/ Notice inviting Tenders must clearly specify:

(i) The form in which EMD shall be acceptable (Cash /DD/ Bankers Cheque / pay order/ Bank Guarantee). In case, EMD has been specified to be deposited in Cash/ DD only, no other form of EMD should be accepted. In case EMD is specified as Bank Guarantee, the same is to be submitted in the form of irrevocable Bank Guarantee from the schedule Banks (or. In case of foreign suppliers, from Bank of International Repute) valid for 28 days beyond the validity of the Bid.

(ii) That offers not accompanied with requisite amount of EMD or EMD not submitted in the specified form shall be summarily rejected.

(iii) That, in case of 2 – Bid system, EMD should be submitted along with Technical Bid/ Offer.

(iv) That, Vendors exempted from the payment of Tender fee and / or submission of EMD as per Govt. of India directives must submit certified copy of GOI’’s authority for such exemption in lieu of Tender Fee/EMD.

(e) EMD received along with tenders should be forwarded to the Finance Deptt.

within 3 days of the opening of the Tenders with the details of the participating firms.

(f) EMD furnished by the successful bidder may be appropriated for security

deposit or performance Guarantee for the warranty period.

(g) EMD furnished by other participating firms will be returned as soon as possible after the expiration of the period of tender validity but not later than 15 days of the award of the contract.

(h) EMD will not carry any interest for the period it is retained with HAL and that

EMD shall be forfeited if a tender withdraws, amends, impairs, and/ or derogates from tender within validity. This shall be made clear in the Terms & conditions in enquiry.

( NO.HAL/CD/617/2005; dated 22 nd Mar 2006)

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7.7 Providing a Level Playing Field between the Indian Industry

vis-à-vis Foreign Suppliers in the Area of Defence Procurement

MoD vide ID No 3(1)/2002/D(S-11) dt 04 Oct 2006 have issued directions on the subject for compliance (copy enclosed)

2. In order to provide a level playing field in the area of Defence procurement between Indian Companies, which are liable to pay duties and local taxes and foreign companies, who do not have such a liability, the following directions have been issued to neutralize the impact of taxes and duties payable by Indian industry while carrying out evaluation of bids to determine L1 vendor:

i) In case of foreign supplier, the basic cost (CIF) quoted by him should be the basis for the purpose of comparison of various tenders. (ii) In case of indigenous suppliers, Excise duty on fully formed equipment be offloaded. (iii) Ignore tax and other levies, i.e. Octroi, entry tax etc. in case of indigenous suppliers including Defence PSUs/OFs.

3. In addition, it has also been decided that the payment condition should be similar for domestic private suppliers, Defence PSUs/Ordnance Factories and the foreign suppliers. 4. As far as the issue regarding offloading of Customs Duty and Countervailing Duties paid on raw materials/components/Sub-assemblies by the Indian Private Sector for comparing prices to determine the L-1 is concerned, a Committee has been set up, by the Government under the Chairmanship of Finance Secretary comprising of Secretary (Industrial Policy & Promotion) and Secretary (Defence Production) to suggest relevant modalities. A decision in this regard, when taken, would be communicated separately by the Ministry. 5. The above approach and principles have to be followed, while making purchases of items (other than raw materials, components, assemblies, sub-assemblies, etc.) for their own production through the public and private sector as well as through foreign sources, by incorporating the same in the tenders before issue. 6. Both Indian and foreign vendors will be asked to quote the basic unit price, taxes and levies (in case of Indian vendors) and transportation and insurance charges separately. A fair estimation of the transportation costs may be added to arrive at Delivery at destination. These conditions may be clearly stipulated in the tender. 7. Divisions are directed to comply.

(HAL/CD/617/2005 dated 05 th Dec 2006) 7.8 Use Of Products With Standard Specification.

A case has come to the notice of the Commission that the user department one

organization requisitioned an item of non-standard size. Requisitioning of item with non-standard size resulted in issue of non-standard size was already available in the stock. Citing urgency, the item was procured by the user department at 10 times the cost of the standard item by inviting limited quotations.

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In order to avoid such occurrences, it is reiterated that the items with standard only

should be stipulated in the bid documents. Incase, items may be recorded and reasonability of rates must be checked before placing order.

( No.98-VGL-25 OM No. dated 14 th Apr 2007)

7.9 Price/Purchase Preference (DPE/Guidelines/VI/12)

Review of Purchase Preference Policy for Products a nd Services of Central Public Sector Enterprises (CPSEs) in view of the judgement of the Supreme Court of India in the matter of M/s Caterpillar India Pvt. Ltd. v/ s Western Coalfields Limited and Ors dated 18.5.2007.

The undersigned is directed to refer to this Department’s O.M. no. DPE.13

(12)/2003-Fin. Vol. II dated 18.7.2005 regarding extension of Purchase Preference Policy for Products and Services of CPSEs for a further period of three years beyond 31.3.2005 with certain modifications. 2. The Supreme Court of India in its judgement in the transferred Civil Petitions of 2004 from the different High Courts in the matter of M/s Caterpillar India Pvt. Limited v/s Western Coalfields Limited and Ors. Observed that imposing a condition like purchase preference no option is left and a monopoly is being created. Any increase in the effectiveness of PSEs cannot be done on a uniform basis without examination as to whether such protection is necessary for a particular PSE. Further, it has to be examined on a case to case basis as to whether any differential treatment is called for. There may not be any competition left if 10% margin is allowed. It was also contended that the preference should be given PSE specific and the margin to be allowed should be examined rationally. Because of the substitution of the word ‘may’ by ‘will’ there is essentially a reversal of the policy. While giving its judgement, the Supreme Court also expressed its views which inter-alia includes the following:

a) Industry-wise assessment to be done by the concerned Ministries and in case of cost effectiveness is achieved by any PSEs there may not be any need for extending preference to such PSEs. Such examination should be done on the line as to whether any preference is at all called for and the extent of margin of preference to be allowed, which would also ensure level playing field for others. Further, while splitting the tenders, the minimum quantity/amount should be so fixed as to ensure that it is rational and there is no element of uncertainty. In other words, there should not be any rigid / inflexible purchase preference policy without examination as to whether such protection is necessary for a particular PSE;

(b) Present practice of allowing uniform margin of 10% over the L-1 bidder, as purchase preference to CPSEs, has to be reviewed and margin should be fixed PSE specific by the concerned Ministry on a rational basis;

c) The overall impact of such preference to be allowed on foreign direct investment has also to be assessed / considered.

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The Supreme Court through its judgement dated 18.5.2007 inter alia directed that the exercise, as noted above shall be undertaken by the concerned Ministry of the Central Government within a period of 4 months from the date of the judgement.

3. In view of the above mentioned judgement of the Supreme Court of India, the Government again reviewed the Purchase Preference Policy for Products and services of Central Public sector Enterprises on 25.10.2007 and decided to reiterate its decision dated 30.6.2005 that the purchase preference policy will be terminated with effect from 31.3.2008. The Government also decided that the preferential purchase policies framed for the specific sectors by the concerned Ministries/ Departments within relevant Act of Parliament or otherwise do not come within the purview of this decision. The concerned Ministry/Department may independently evolve/review preferential policies for the sectors of their concern, as per their requirement.

4. All the administrative Ministries/Departments are requested to take note of the above mentioned decision of the Government and also bring it to the notice of the CPSEs under their administrative control for information and necessary compliance.

(DPE OM No. DPE/13(15)/2007-Fin dated 21 st Nov 2007)

7.10 Acceptance Of Bank Guarantee

Commission has noticed forged / fake BGs by the contractors / suppliers. Organizations concerned have also not made any effective attempt to verify the genuineness / authenticity of these Bank Guarantees at the time of submission. 2) To streamline the system and to eliminate the possibility of forged / fake BGs, following guidelines to be adhered to strictly:

a) Copy of proper prescribed format on which BGs are accepted from the contractors should be enclosed with the tender document and it should be verified verbatim on receipt with original document. The standard format for acceptance of Bank Guarantees has been circulated vide Circular No. FIN/C-12/BANKS/04-05/28; dated 19-11-2004

b) It should be insisted upon the contractors, suppliers etc, that BGs to be

submitted by them should be sent to HAL directly be issuing bank under Registered Post [AD]

c) In exceptional cases, where the BGs are received through the contractors,

suppliers etc, the issuing branch should be requested to immediately send by Registered Post [AD] an unstamped duplicate copy of the guarantee directly to HAL with a covering letter to compare with the original BGs and confirm that it is in order

3) In the light of the above it may be ensured that in all cases,

i) Bank Guarantee received from banks / vendors are duly vetted by IMM / Works / respective departments for compliance with the Standard format before acceptance

ii) It should be insisted upon the contractors, suppliers etc, that BGs to be

submitted by them should be sent to HAL directly by issuing bank under

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Registered Post [AD]. A proper clause should be inserted in the purchase order / contract accordingly.

iii) In exceptional cases, where the BGs are received through the contractors,

suppliers etc the issuing branch should be requested to immediately send by Registered Post [AD] an unstamped duplicate copy of the guarantee directly to HAL with a covering letter to compare with the original BGs and confirm that it is in order.

iv) After vetting IMM / Works / respective departments should send original

Bank Guarantee to bills payable departments for keeping in the safe custody maintained with cash department after taking proper acknowledgement from B/P department. A Xerox copy of the Bank Guarantee may be kept in the respective file.

v) Before sending original Bank Guarantee to bills payable department for

keeping in the safe custody, IMM / works / respective department must diarize expiry date of the bank guarantee for timely renewal and timely encashment of BGs without fail

vi) Cash department should enter Bank Guarantee details with expiry date

into Bank Guarantee Custody register and keep the BGs in the safe custody.

(FIN/C-12/BG/07-08/62; dated 8 th Feb 2008)

7.11 Acceptance Of Bank Guarantee

A number of instances have come to the notice of the Commission where forged / fake bank guarantees have been submitted by the contractors / suppliers. Organizations concerned have also not made any effective attempt to verify the genuineness / authenticity of these bank guarantees at the time of submission. 2. In this background, all organizations are advised to streamline the system of acceptance of Bank Guarantees from contractors / suppliers to eliminate the possibility of acceptance of any forged / fake bank guarantees. 3. The guidelines on this subject issued by Canara Bank provides for an elaborate procedure, which may be found helpful for the organizations in eliminating the possibility of acceptance of forged / fake bank guarantees. The guidelines issued by Canara Bank provide that:- “The original guarantee should be sent to the beneficiary directly under Registered Post [AD]. However, in exceptional cases, where the guarantee is handed over to the customer for any genuine reasons, the branch should immediately send by Registered Post [AD] an unstamped duplicate copy of the guarantee directly to the beneficiary with a covering letter requesting them to compare with the original received from their customer and confirm that is in order. The AD card should be kept with the loan papers of the relevant guarantee.

At times, branches may receive letters from beneficiaries viz central / state Governments, public sector undertakings, requiring bank’s confirmation for having issued

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the guarantee, branches must send the confirmation letter to the concerned authorities promptly without fail 4. Therefore, all organizations are advised to evolve the procedure for acceptance of BGs, which is compatible with the guidelines of Banks / Reserve Bank of India.

(No. 02-07-01-CTE-30; dated 31 st Dec 2008) 7.12 Preferential Preference Policy (PPP) for products a nd services of CPSUs

This is regarding the issue of Preferential Purchase Policies (PPP) for products and services of CPSUs. 2. As per Dept of Public Enterprise’s OM No DP/13/(15)2007-Fin dt 21.11.2007, the Government has terminated the PPP with effect from 31.03.2009. However, the Government has also decided that preferential purchase policies may be independently evolved/reviewed by the Ministries/ Departments concerned, for the sectors of their concern, as per requirements. 3. In this regard, the Commission desires to hear from Ministries/Depts and CPSUs if they have independently evolved preferential policy on a sectoral basis in line with the above DPE guidelines.

(01-02-01-CTE-03 dated 24 th Aug 2009) 8. INTEGRITY PACT

8.1 Adoption of Integrity Pact in major Government Proc urement Activities

Ensuring transparency, equity and competitiveness in public procurement has been a major concern of the Central Vigilance Commission and various steps have been taken by it to bring this about. Leveraging technology especially wider use of the web-sites for disseminating information on tenders, tightly defining the pre-qualification criteria and other terms and conditions of the tender are some of the steps recently taken at the instance of the Commission in order to bring about greater transparency and competition in the procurement/award of tender. 2. In this context, Integrity Pact, a vigilance tool first promoted by the Transparency International, has been found to be useful. The Pact essentially envisages an agreement between the prospective vendors/bidders and the buyer committing the persons/officials of both the parties, not to exercise any corrupt influence on any aspect of the contract. Only those vendors/bidders who have entered into such an Integrity Pact with the buyer would be competent to participate in the bidding. In other words, entering into this Pact would be a preliminary qualification. The Integrity Pact in respect of a particular contract would be effective from the stage of invitation of bids till the complete execution of the contract. 3. The Integrity Pact envisages a panel of Independent External Monitors (IEMs) approved for the organization. The IEM is to review independently and objectively, whether and to what extent parties have complied with their obligations under the Pact. He has right of access to all project documentation. The Monitor may examine any complaint received by him and submit a report to the Chief Executive of the organization, at the earliest. He may also submit a report directly to the CVO and the Commission, in case of suspicion of serious irregularities attracting the provisions of the PC Act.

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However, even though a contract may be covered by an Integrity Pact, the Central Vigilance Commission may, at its discretion, have any complaint received by it relating to such a contract, investigated. 4. The Commission would recommend the Integrity Pact concept and encourage its adoption and implementation in respect of all major procurements of the Govt. organizations. As it is necessary that the Monitors appointed should be of high integrity and reputation, it has been decided that the Commission would approve the names of the persons to be included in the panel. The Government Organizations are, therefore, required to submit a panel of names of eminent persons of high integrity and repute and experience in the relevant field, through their administrative Ministry, for consideration and approval by the Commission as Independent External Monitors. The terms and conditions including the remuneration payable to the Monitors need not be a part of the Integrity Pact and the same could be separately communicated. It has also to be ensured by an appropriate provision in the contract, that the Integrity Pact is deemed as part of the contract in order to ensure that the parties are bound by the recommendation of the IEMs, in case any complaint relating to the contract, is found substantiated. 5. A copy of the Integrity Pact, which the SAIL got vetted by the Addl. Solicitor General is available on the Commission’s web-site i.e. www.cvc.nic.in as an attachment to this Office Order in downloadable form, which may be used in original or may be suitably modified in order to meet the individual organization’s requirements.

Steel Authority of India Limited (SAIL) hereinafter referred to as “The Principal”. And …………………………….hereinafter referred to as “The Bidder/Contractor”

Preamble

The Principal intends to award, under laid down organizational procedures, contract/s for ……………………………………………The Principal values full compliance with all relevant laws of the land, rules, regulations, economic use of resources and of fairness/transparency in its relations with its Bidder(s) and /or Contractor(s). In order to achieve these goals, the Principal will appoint an Independent External Monitor (IEM), who will monitor the tender process and the execution of the contract for compliance with the principles mentioned above. Section 1- Commitments of the Principal . 1. The Principal commits itself to take all measures necessary to prevent corruption and to observe the following principles:-

a. No employee of the Principal, personally or through family members, will in connection with the tender for, or the execution of a contract, demand, take a promise for or accept, for self or third person, any material or immaterial benefit which the person is not legally entitled to. b. The Principal will during the tender process treat all Bidder(s) with equity and reason. The Principal will in particular, before and during the tender process, provide to all Bidder(s) the same information and will not provide to any Bidder(s) confidential/additional information through which the Bidder(s) could obtain an advantage in relation to the process or the contract execution. c. The Principal will exclude from the process all known prejudiced persons.

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2. If the Principal obtains information on the conduct of any of its employees which is a criminal offence under the IPC/PC Act, or it there be a substantive suspicion in this regard, the Principal will inform the Chief Vigilance Officer and in addition can initiate disciplinary actions. Section 2 – Commitments of the Bidder(s)/ Contracto r(s) 1. The Bidder(s)/Contractor(s) commit himself to take all measures necessary to prevent corruption. He commits himself to observe the following principles during his participation in the tender process and during the contract execution.

a. The Bidder(s) / contractor(s) will not, directly or through any other persons or firm, offer promise or give to any of the Principal’s employees involved in the tender process or the execution of the contract or to any third person any material or other benefit which he/she is not legally entitled to, in order to obtain in exchange any advantage or during the execution of the contract. b. The Bidder(s)/Contractor(s) will not enter with other Bidders into any undisclosed agreement or understanding, whether formal or informal. This applies in particular to prices, specifications, certifications, subsidiary contracts, submission or non submission of bids or any other actions to restrict competitiveness or to introduce cartelization in the bidding process. c. The Bidder(s)/Contractor(s) will not commit any offence under the relevant IPC/PC Act; further the Bidder(s) /Contractors will not use improperly, for purposes of competition or personal gain, or pass on to others, any information or document provided by the Principal as part of the business relationship, regarding plans, technical proposals and business details, including information contained or transmitted electronically. d. The Bidder(s)/Contractor(s) of foreign origin shall disclose the name and address of the Agents/representatives in India, if any. Similarly, the bidder(s)/contractor(s) of Indian Nationality shall furnish the name and address of the foreign principals, if any. Further details as mentioned in the “Guidelines on Indian Agents of Foreign Suppliers” shall be disclosed by the Bidder(s)/Contractor(s). Further, as mentioned in the Guidelines all the payments made to the Indian agent/representative have to be in Indian Rupees only. Copy of the “Guidelines on Indian Agents of Foreign Suppliers’ as annexed and marked as Annexure. e. The Bidder(s)/Contractor(s) will, when presenting his bid, disclose any and all payments he has made, is committed to or intends to make to agents, brokers or any other intermediaries in connection with the award of the contract.

2. The Bidder(s)/Contractor(s) will not instigate third persons to commit offences outlined above or be an accessory to such offences. Section 3: Disqualification from tender process and exclusion from future contracts

If the Bidder(s)/Contractor(s), before award or during execution has committed a transgression through a violation of Section 2, above or in any other form such as to put

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his reliability or credibility in question, the Principal is entitled to disqualify the Bidder(s)/Contractor(s) from the tender process or take action as per the procedure mentioned in the “Guidelines on Banning of business dealings”. Copy of the “Guidelines on Banning of business dealings” is annexed and marked as Annexure -“B”. Section 4 : Compensation for Damages 1. If the Principal has disqualified the Bidder(s) from the tender process prior to the award according to Section 3, the Principal is entitled to demand and recover the damages equivalent to Earnest Money Deposit/Bid Security. 2. If the Principal has terminated the contract according to Section 3, or if the Principal is entitled to terminate the contract according to Section 3, the Principal shall be entitled to demand and recover from the Contractor liquidated damages of the Contract value or the amount equivalent to Performance Bank Guarantee. Section 5 : Previous Transgression 1. The Bidder declares that no previous transgressions occurred in the last three years with any other company in any country conforming to the anti corruption approach or with any other public sector enterprise in India that could justify his exclusion from the tender process. 2. If the bidder makes incorrect statement on this subject, he can be disqualified from the tender process for action can be taken as per the procedure mentioned in “Guidelines on Banning of business dealings”. Section 6: Equal treatment of all Bidders/Contracto rs/Subcontractors. 1. The Bidder(s)/Contractor(s) undertake(s) to demand from all subcontractors a commitment in conformity with this Integrity Pact, and to submit it to the Principal before contract signing. 2. The Principal will enter into agreements with identical conditions as this one with all bidders, contractors and subcontractors. 3. The Principal will disqualify from the tender process all bidders who do not sign this Pact or violate its provisions. Section 7: Criminal charges against violation Bidde r(s)/Contractor(s)/Sub-Contractor(s)

If the Principal obtains knowledge of conduct of a Bidder, Contractor or Subcontractor, or of an employee or a representative or an associate of a Bidder, Contractor or Subcontractor which constitutes corruption, or if the Principal has substantive suspicion in this regard, the Principal will inform the same to the Chief Vigilance Officer.

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Section 8: Independent External Monitor/Monitors (1) The Principal appoints competent and credible Independent External Monitor for this Pact. The task of the Monitor is to review independently and objectively, whether and to what extent the parties comply with the obligations under this agreement. (2) The Monitor is not subject to instructions by the representatives of the parties and performs his functions neutrally and independently. He reports to the Chairman, SAIL. (3) The Bidder(s)/Contractor(s) accepts that the Monitor has the right to access without restriction to all project documentation of the Principal including that provided by the Contractor. The Contractor will also grant the Monitor, upon his request and demonstration of a valid interest, unrestricted and unconditional access to his project documentation. The same is applicable to Subcontractors. The Monitor is under contractual obligation to treat the information and documents of the Bidder(s)/Contractor(s)/ Subcontractor(s) with confidentiality. (4) The Principal will provide to the Monitor sufficient information about all meetings among the parties related to the Project provided such meetings could have an impact on the contractual relations between the Principal and the Contractor. The parties offer to the Monitor the option to participate in such meetings. (5) As soon as the Monitor notices, or believes to notice, a violation of this agreement, he will so inform the Management of the Principal and request the Management to discontinue or take corrective action, or to take other relevant action. The monitor can in this regard submit non-binding recommendations. Beyond this, the Monitor has no right to demand from the parties that they act in a specific manner, refrain from action or tolerate action. (6) The Monitor will submit a written report to the Chairman, SAIL within 8 to 10 weeks from the date of reference or intimation to him by the Principal and, should the occasion arise, submit proposals for correcting problematic situations. (7) Monitor shall be entitle to compensation on the same terms as being extended to / provided to Independent Directors on the SAIL Board. (8) If the Monitor has reported to the Chairman SAIL, a substantiated suspicion of an offence under relevant IPC/PC Act, and the Chairman SAIL has not, within the reasonable time taken visible action to proceed against such offence or reported it to the Chief Vigilance Officer, the Monitor may also transmit this information directly to the Central Vigilance Commissioner. 9) The word ‘Monitor’ would include both singular and plural. Section 9 – Pact Duration

This pact begins when both parties have legally signed it. It expires for the Contractor 10 months after the last payment under the contract, and for all other Bidders & months ---- the contract has been awarded. If any claim is made / lodged during this time, the same shall be binding and continue to be valid despite the lapse of this pact as specified above, unless it is discharged / determined by Chairman of SAIL.

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Section 10 – Other provisions

� This agreement is subject to Indian Law, Place of performance and jurisdiction is the Registered Office of the Principal, i.e. New Delhi.

� Changes and supplements as well as termination notices need to be made in writing. Side agreements have not been made.

� If the Contractor is a partnership or a consortium, this agreement must be signed by all partners or consortium members.

� Should one or several provisions of this agreement turn out to be invalid, the remainder of this agreement remains valid. In this case, the parties will strive to come to an agreement to their original intentions.

(For & on behalf of the Principal) (For & On behalf of Bidder/ Contractor) (Office Seal) (Office Seal) Place ------------------ Date ------------------ Witness 1: (Name & Address) ______________________________ Witness 2: (Name & Address) ______________________________

(007/VGL/033 dated 04 th Dec 2007 - Office Order No.4/12/07) 8.2 Adoption of Integrity Pact in major Government Proc urement Activities

Reference is invited to Commission’s office order no. 41/12/2007 circulated vide

letter of even no. dated 4/12/2007 on the aforementioned subject. 2. The Commission vide para 4 of the aforementioned office order had directed that the organizations were required to forward a panel of names of the eminent persons of high integrity through their administrative ministries for consideration and approval by the Commission as IEMs. 3. The matter has been reconsidered by the Commission and in order to simplify the procedure and avoid delay, it has been decided that the organizations may forward the panel of names of eminent persons for appointment and consideration as IEMs directly to the Commission for approval. 4. Para 4 of the Commission’s circular cited above stands amended to this extent.

(007/VGL/033 dated 28 th Dec 2007)

8.3 Adoption of Integrity Pact in major Government Proc urement Activities

The Commission vide its office order no. 41/12/07 dated 4/12/07 had circulated a letter no. 007/vgl/033 emphasizing the need to adopt Integrity Pact (IP)by government organizations in respect of their major procurement activities. The Commission had also directed that in order to ensure compliance with the obligations under the pact by the parties concerned, Independent External Monitors (IEMs) are to be appointed after obtaining approval of the Commission for the names to be included in the panel.

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2. As the role of IEMs is very important in ensuring implementation of the IP, it is necessary that the persons recommended for appointment have adequate experience in the relevant fields and are of high integrity and reputation.

3. The Commission would, therefore, forwarding the names of the persons for empanelment as IEMs should sent a detailed bio-data in respect of the each of the persons proposed. The bio-data should, among other things, include the posting / superannuation of the persons proposed as IEMs, in case the names relate to persons having worked in the government sector. The bio details regarding experience older than ten years before persons proposed as IEMs, if they have relevant domain experience in the activities of PSUs where they are considered as IEMs. This may be noted for future compliance.

(No. 008/VGL/001dated 19 th May 2008) 8.4 Adoption of Integrity Pact in major Government proc urement activities

The Commission, vide its Circulars No. 41/12/07, dated 4.12.07 and 18/5/08

dated 19.5.08, has emphasized the necessity to adopt Integrity Pact (IP) in Government organizations in their major procurement activities. The Commission had also directed that in order to oversee the compliance of obligations under the Pact, by the parties concerned, Independent External Monitors (IEMs) should be nominated with the approval of the Commission, out of a panel of names proposed by an Organization.

2. As more and more organizations begin to adopt the Integrity Pact, several queries and operational issues have been raised. The Commission has examined these issues and suggested the following guidelines:

a) Adoption of Integrity Pact in an organization is voluntary, but once adopted, it should cover all tenders/procurements above a specified threshold value, which should be set by the organization itself. b) IP should cover all phases of the contract i.e., from the stage of Notice Inviting Tender(NIT)/pre-bid stage to the stage of last payment or a still later stage, covered through warranty, guarantee etc. c) IEMs are vital to the implementation of IP and atleast one IEM should be invariably cited in the NIT. However, for ensuring the desired transparency and objectivity in dealing with the complaints arising out of any tendering process, the matter should be referred to the full panel of IEMs, who would examine the records, conduct the investigation and submit a report to the management, giving joint findings. d) A maximum of three IEMs would be appointed in Navratna PSUs and upto two IEMs in other Public Sector Undertakings. The organizations may, however, forward a panel of more than three names for the Commission’s approval. For the PSUs having a large territorial spread or those having several subsidiaries, the Commission may consider approving a large number of IEMs, but not more than two IEMs would be assigned to any one subsidiary. e) Remuneration payable to the IEMs Directors in the organization.

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f) In view of limited procurement activities in the Public Sector Banks, Insurance Companies and Financial Institution, they are exempted from adopting IP.

g) It needs no reiteration to realize the spirit and objective of the Integrity Pact. For further clarifications on its implementation or the role of IEMs, all concerned are advised to approach the Commission.

(No. 007/VGL/033 dated 05 th Aug 2008)

8.5 Integrity Pact

MOD has since issued Defense Procurement Procedure 2008 (DPP-08), wherein

certain additional clause/paras have been added with regard to Integrity Pact. Further, Integrity Pact has to be signed with vendors in case estimated value of each contract(s) exceeds Rs. 20 Crores.

2. Integrity Pact has been revised to incorporate the above changes and is enclosed herewith as Revision-I dtd. 04 November 2008.

3. This supersedes the Integrity Pact issued vide MM Circular No.36 dtd 2nd Jul 2008. Note: For Annexure, please refer to enclosure of the letter No.

(HAL/CD/617/2008 dated 04 th Nov 2008)

8.6 Implementation of Integrity Pact.

1. This has reference to the Circular of Materials Management No. HAL/CD/617/20 dated 2nd July 2008 on the subject and subsequent amendment vide letter of even number dated 4th November 2008. 2. As you are aware, the Company had provided for execution of Integrity Pact in all major Contracts / Purchase Orders / Agreements in line with the CVC Guidelines to bring transparency in the system. 3. Taking into consideration the Defence procurement procedure 2008, the Company had issued directives to the Divisions in November 2008 for signing of the Integrity Pact with the Vendors in contracts exceeding Rs. Twenty Crores. 4. As regards the Russian suppliers, the matter had been taken up with the MOD for a final decision in the matter.

5. It is reiterated that the Integrity Pact is required to be signed in respect of all Contracts / Purchase Orders / Agreements exceeding Rs. Twenty Crores. 6. Your co-operation for implementation of the procedure regarding Integrity Pact in all the Divisions is requested.

(HAL/CD/617/2008 dated 06 th Jan 2008)

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8.7 Adoption of Integrity Pact-Standard Operating Proc edure

The Commission has formulated “Standard Operating Procedure” for adoption of Integrity Pact in major Govt. Department/authorized. A copy of the same is enclosed for information and necessary action. 1.0 Background 1.01 The Central Vigilance Commission has been promoting Integrity, transparency, equity and competitiveness in Government/PSU transactions and as a part of vigilance administration and superintendence. Public procurement is a major area of concern for the Central Vigilance Commission and various steps have been taken to put proper systems in place. Leveraging technology, especially wider use of the web sites for disseminating information on tenders, clearly defining the pre-qualification criteria and other terms and conditions of the tender are some of the steps recently taken at the instance of the Commission. In this context, Integrity Pact (IP), a vigilance tool conceptualized and promoted by the Transparency International, has been found to be useful. The Commission has, through its Office Orders No. 41/12/07 dated 04.12.07 and 43/12/07 dated 28.12.07 and Circulars No. 18/05/08 dated 19.05.08 and 24.08.08 dated 05.08.2008 (copies appended), recommended adoption of Integrity Pact and provided basic guidelines for its implementation in respect of major procurements in the Government Organizations. 2.0 Integrity Pact

a) The pact essentially envisages an agreement between the prospective vendors/bidders and the buyer, committing the persons/officials of both sides, not to resort to any corrupt practices in any aspect/stage of the contract. Only those vendors/bidders, who commit themselves to such a Pact with the buyer, would be considered competent to participate in the bidding process. In other words, entering into this Pact would be a preliminary qualification. The essential ingredients of the Pact include:

� Promise on the part of the principal not to seek or accept any benefit, which is not

legally available; � Principal to treat all bidders with equity and reason; � Promise on the part of bidders not to offer any benefit to the employees of the

Principal not available legally; � Bidders not to enter into any undisclosed agreement or understanding with other

bidders with respect to prices, specifications, certifications, subsidiary contracts, etc.

� Bidders not to pass any information provided by Principal as part of business relationship to others and not to commit any offence under PC/ IPC Act;

� Foreign bidders to disclose the name and address of agents and representatives in India and Indian Bidders to disclose their foreign principals or associates;

� Bidders to disclose the payments to be made by them to agents / brokers or any other intermediary.

� Bidders to disclose any transgressions with any other company that may impinge on the anti corruption principle.

2.02 Integrity Pact, in respect of a particular contract, would be operative from the stage of invitation of bids till the final completion of the contract. Any violation of the

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same would entail disqualification of the bidders and exclusion from future business dealings. 3.0 Implementation procedure : 3.01 Adoption of IP is voluntary for any organization, but once adopted, it should cover all tenders /procurements above a specified threshold value. 3.02 The threshold value for the contracts to be covered through IP should be decided after conducting proper ABC analysis and should be fixed so as to cover 90-95% of the total procurements of the organization in monetary terms. 3.03 Apart from all high value contracts, any contract involving complicated or serious issues could be brought within the ambit of IP, after a considered decision of the management. 3.04 The Purchase / procurement wing of the organization would be the focal point for the implementation of IP. 3.05 The Vigilance Department would be responsible for review, enforcement, and reporting on all related vigilance issues. 3.06 It has to be ensured, through an appropriate provision in the contract, that IP is deemed as part of the contract so that the parties concerned are bound by its provisions. 3.07 IP should cover all phases of the contract, i.e. from the stage of Notice Inviting Tender (NIT)/pre-bid stage till the conclusion of the contract, i.e. the final payment or the duration of warranty/guarantee. 3.08 IP would be implemented through a panel of Independent External Monitors (IEMs), appointed by the organization. The IEM would review independently and objectively, whether and to what extent parties have complied with their obligations under the Pact. 3.09 Periodical Vendors’ meets, as a familiarization and confidence building measure, would be desirable for a wider and realistic compliance of the principles of IP. 3.10 Information relating to tenders in progress and under finalization would need to be shared with the IEMs on monthly basis. 4.0 Role /Functions of IEMs : 4.01 IEM would have access to all Contract documents, whenever required. Ideally, all IEMs of an organization should meet in two months to take stock of the ongoing tendering processes. 4.02. It would be desirable to have structured meeting of the IEMs with the Chief Executive of the organization on a monthly basis to discuss/review the information on tenders awarded in the previous month. 4.03 The IEMs would examine all complaints received by them and give their recommendations/views to the Chief Executive of the organization, at the earliest. They

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may also send their report directly to the CVO and the Commission, in case of suspicion of serious irregularities requiring legal/administrative action. 4.04 At least one IEM should be invariably cited in the NIT. However, for ensuring the desired transparency and objectivity in dealing with the complaints arising out of any tendering process, the matter should be examined by the full panel of IEMs, who would look into the records, conduct an investigation, and submit their joint recommendations to the Management 4.05 The recommendations of IEMs would be in the nature of advice and would not be legally binding. At the same time, it must be understood that IEMs are not consultants to the Management. Their role is independent in nature and the advice once tendered would not be subject to review at the request of the organization. 4.06 The role of the CVO of the organization shall remain unaffected by the presence of IEMs. A matter being examined by the IEMs can be separately investigated by the CVO in terms of the provisions of the CVC Act or Vigilance Manual, if a complaint is received by him or directed to him by the Commission. 5.0 Appointment of IEMs 5.01 The IEMs appointed should be eminent personalities of high integrity and reputation. The Commission would approve the names of IEMs out of the panel of names, initiated by the organization concerned, in association/consultation with the CVO. 5.02 While forwarding the panel, the organization would enclose detailed bio-data in respect of all names proposed. The details would include postings before superannuation, special achievements, experience, etc., in Government sector. It is desirable that the persons proposed possess domain experience of the PSU activities or the relevant field with which they may be required to deal. 5.03 A maximum of three IEMs would be appointed for Navratna PSUs and up to two IEMs for others. 5.04 Organizations could propose a panel of more than three names for the consideration of the Commission. 5.05 Persons appointed as IEMs in two organizations would not be considered for a third organization. 5.06 For PSUs having a large territorial spread or those having several subsidiaries, there could be more IEMs, but not more than two IEMs would be assigned to one subsidiary. 5.07 Remuneration payable to the IEMs would be equivalent to that admissible to an Independent Director in the organization. This remuneration would be paid by the organization concerned. 5.08 The terms and conditions of appointment, including the remuneration payable to the IEMs, should not be included in the Integrity Pact or the NIT. They could be communicated individually to the IEMs concerned.

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5.09 The normal term of appointment for an IEM would be 3 years, and it would be subject to renewal by the Commission thereafter. 6.0 Review System : 6.01 An internal assessment of the impact of IP shall be carried out periodically by the CVOs of the organizations and reported to the Commission. 6.02 Two additional reviews are envisaged for each organization in due course.

(i) Financial impact review, which could be conducted through an independent agency like auditors, and (ii) Physical review, which could be done through an NGO of tested credibility in the particular field.

6.03 It is proposed to include the progress in the implementation of IP in the Annual Report of the Commission. CVOs of all organizations would keep the Commission posted with the implementation status through their monthly reports or special reports, wherever necessary. 7.0 All organizations are called upon to make sincere and sustained efforts to imbibe the spirit and principles of the Integrity Pact and carry it to its effective implementation.

(008/CRD/013 Dated 18 th May 2009)

9. HANDLING OF TENDERS

9.1 Rejection Of Conditional Tenders/Quotes Contrary To HAL Terms & Conditions

1. Subsequent to the issue of policy letter No.HAL/CO/VIG/46/167 dt 20 Apr 1999, banning negotiations with other than L 1 parties (Vendors /Contractors) by CVC, it has been observed that in a number of cases conditional tenders / quotes suitable to contractor /vendor are being accepted, which is contrary to the provisions given in HAL Manuals of Purchase and, Works & Contract Procedures. 2. It has also been found that in certain cases two bid or two envelope system is not being followed, in this connection please refer to HAL letter No. HAL/CSV/HO (23/88/303 dt. 06 May 88, and HAL/CD/ 617/99 dt. 02 Aug 99. 3. In order to provide transparency in commercial deals and execution of works, it is requested that all concerned may kindly be instructed, firstly to adhere to laid down procedure for two bid /envelope system, and secondly, all conditional tenders /quotes must be rejected unless even without the pre-conditions/conditions, the tenders are Ll.

( HAL/CO/VIG/47/134/2000 dated 19 th Feb 2000)

9.2 Tenders – Freak Rates And Corrections/Insertions/ O ver-Writings In

Documents Of Negotiations 1. In the recent Intensive Examination of works, CTE has observed that the constant of 1.5 adopted in HAL as per para 35 of Works and Contract Procedure for

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qualifying a rate as freak is high and requires revision to ensure that tenders are evaluated rationally. It has been suggested by CTE that the constant may be lowered to 1.25. 2. Above suggestion of CTE has been studied in detail and it is found that by adopting a lower constant of 1.25 for qualifying a tender rate as freak rate, the Company will gain by restricting the freak rates at a lower margin to the contractor as compared to the present constant of 1.5. Besides this restricting the execution of the work of freak rate items with a lower constant of 1.25, as per the deviation limit for freak rate items prescribed in Para 38 of Works and Contract Procedure shall be more rational. Hence, Para 35 of HAL Works and Contract Procedure may be revised as under and implemented with immediate effect in all future tenders:-

(a) Para 35 shall read as: “Freak rate are those rates which are either unworkably low or unbelievingly high. Such rates may be the result of genuine mistakes on the part of the tenderers such as quoting for One flat when the unit is a block of four or assuming the unit shown in the tender is hundred etc. Where the rate quoted by the contractor in a tender varies from the estimated rates based on latest edition of MES SSR rate or market rate (for items which are not found in the latest edition of MES SSR), exceeds or falls below the estimate rate by 25% and more shall be considered as FREAK RATE”.

3. While evaluating the lowest tender, it should be ensured that the net financial effect of the amounts of items with freak rates as compared to estimate i.e., arithmetical sum of difference of high freak rate item’s amount (taken with plus sign) and low freak rates item’s amount (taken with minus sign), is kept as minimum as possible, before considering acceptance of work. 4. CTE has also observed that the corrections/over-writings/insertions in the negotiation letters of contractors have not been marked by the authorities during negotiations. 5. It is emphasized here that the negotiations should be carried out in the most transparent manner by the accepting officer. The documents presented by the contractor during negotiations forms part of the contract agreement (refer para 48(m) of works and contract procedure). To ensure transparency in handling the documents during the negotiations following guidelines is reiterated:-

a) Any corrections/over-writings/insertions in the documents submitted by the contractor/supplier during negotiations must be authenticated by the chairman, Finance representative and User’s representative of the negotiation committee and also by the contractor/supplier at the time of negotiation itself to avoid any future tampering. The responsibility to ensure is that of the Chairman of the Committee.

b) The above instructions may also be included in the HAL Works and Contract Procedure 1985 under revision by Bangalore Complex. Till issue of revised Manual, Divisions will adhere to the above instructions.

(HAL/CO/VIG/64/2001/388 dated 22 nd Mar 2001)

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9.3 Acceptance Of Late/Delayed Tenders Study of a number of cases have revealed that procedures relating to opening of tenders and acceptance of late tenders are not being strictly adhered to and late offers/offers received after tender opening have been considered. This is against the principles of tendering and undermines the sanctity of tender system.

In view of the above, it has been decided to follow the following instructions strictly:-

a) All requests for quotations / tender enquiry must specify “Last Date for submission of Quotes”. The tender must also state that “Late tenders shall not be opened and shall not be considered”. This should be prominently mentioned in the tender enquiry.

b) Any bid received by the Company after the due date specified in tender/RFQ must be kept intact, un-opened/sealed and not considered. The same will be retained in the concerned purchase file. c) Quotations/bids which are received late through Fax, shall also be treated in the same manner as at para (b) above. d) In case, the tender is against “Single Tender” enquiry (Proprietary/Customer Nominated), a late tender may be considered after obtaining the approval of GM.

3. Above supersedes provisions of Purchase Manual on the subject at Para 7.6. 4. This issues with the approval of Competent Authority.

(HAL/CD/617/2003 dated 03 rd Jul 2003)

9.4 Receipt and Opening of Tenders In the various booklets issued by the CTE Organisation of the Commission, the need to maintain transparency in receipt and opening of the tenders has been emphasized and it has been suggested therein that suitable arrangements for receipt of sealed tenders at the scheduled date and time through conspicuously located tender boxes need to be ensured . A case has come to the notice of the Commission, where due to the bulky size of tender documents the bid conditions envisaged submission of tenders by hand to a designated offic er. However, it seems that one of the bidders while trying to locate the exact place of submission of tenders, got delayed by few minutes and the tender was not accepted leading to a complaint. In general, the receipt of tenders should be through tender boxes as suggested in our booklets. However, in cases where the tenders are required to be submitted by hand, it may be ensured that the names and designation of at least two officers are mentioned in the bid documents . The information about these officers should also be displayed at the entrance/reception of the premises where tenders are to be deposited so as to ensure convenient approach for the bidders . The tenders after receipt should be opened on the stipulated date and time in presence of the intending bidders .

( 05-04-1-CTE-8 Dated 8 th Jun 2004)

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9.5 Undertaking by the Members of Tender Committee/Agen cy In continuation of the Commission’s directions vide Order 005/VGL/4 dated 16/3/2005 regarding transparency in the tender process, the Commission would advise that the members of the Tender Committee should give an undertaking at the appropriate time, that none of them has any personal interest in the Companies/Agencies participating in the tender process. Any member having interest in any Company should refrain from participating in the Tender Committee. 2. CVOs should bring this to the notice of all concerned.

( 005/VGL/66 Dated 9 th Dec 2005 )

9.6 Participation in Approval process CVC, vide Office Order No. 71/12/05, Ref.005/VGL/66 dt 9/12/05 has advised that members of the Tender Committee should give an undertaking at the appropriate time, that none of them has any personal interest in the Companies/Agencies participating in the tender process. It further states that any member having interest in any company should refrain from participating in the Tender Committee. 2. As per DOP, procurement proposals are approved by GM/ED/MD/CH/PSC/Board as per the financial powers delegated to the CFA in DOP. As such, there is no Tender Committee constituted in Hal either for processing the procurement proposals or approval of the same (except for the limited purpose of opening the Tenders). 3. In view of above, it is directed that officials involved in following processes should give the undertaking on a format, sample as enclosed, at the appropriate time before approval and the same shall be placed in respective purchase file. a. Tender Opening b. Technical Evaluation/ Acceptance c. Commercial Evaluation/ Acceptance d. Negotiating Committee e. Purchase Proposal

(HAL/CD/617/2006 dated 20 th May 2006) 10. TENDER NEGOTIATIONS 10.1 Improving Vigilance Administration : Tenders

Please refer to CVC’s instructions issued under letter No 8(1)(h)/98(I) dated 18/11/98 banning post tender negotiations except with L-1 i.e., the lowest tenderer. Some of the organizations have sought clarifications from the Commission as they are facing problems in implementing these instructions. The following clarifications are, therefore, issued with the approval of Central Vigilance Commissioner.

a) The Government of India has a purchase preference policy so far as the public sector enterprises are concerned. It is clarified that the ban on the post tender negotiations does not mean that the policy of the Government of India for purchase preference for public sector should not be implemented.

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b) Incidentally, some organizations have been using the public sector as a shield or a conduit for getting costly inputs or for improper purchases. This also should be avoided.

c) Another issue that has been raised is that many a time the quantity to be ordered is much more than L1 alone can supply. In such cases the quantity order may be distributed in such a manner that the purchase is done in a fair transparent and equitable manner.

(CVC letter No 98/ORD/1 dated 15 th Mar 1999)

10.2 Improving Vigilance Administration – Tenders Please refer to CVC’s instructions issued under letter No 8(1)(h)/98(I) dated 18/11/98, banning post tender negotiations except with L-1. 2. The Commission has been getting a number of queries on how to handle the matter if the quantity to be ordered is more than L-1 can supply or about placement of orders on Public Sector Undertakings. It is requested that such matters may be dealt with in accordance with the clarifications issued by the Commission vide its letter of even number dated 15.3.99(copy enclosed). 3. Some of the organizations have sought clarification as to whether they can consider the L-2 offer or negotiate with that firm if L-1 withdraws his offer before the work order is placed, or before the supply or execution of work order takes place. In this regard, it is clarified that such a situation may be avoided if a two-bid system is followed (techno-commercial) so that proper assessment of the offers is made before the award of work order. Therefore, if L-1 party backs out, there should be retendering in a transparent and fair manner. The authority may in such a situation call for limited or short notice tender if so justified in the interest of work and take a decision on the basis of lowest tender. 4. The Commission has also been getting references for its advice on the procedures being followed in individual cases of tenders. The Commission would not involve itself in the decision making process of individual authorized. It, however, would expects the organizations to implement its instructions dated 18.11.98, in its spirit and to ensure that the decisions of administrative authorities are transparent.

(CVC letter No 98/ORD/1 dated 24 th Aug 2000 )

10.3 Improving Vigilance Administration – Tenders Please refer to the instructions issued by the Commission vide its communication No 8(1) (h)/98(1) dated 18 Nov 1998, banning post-tender negotiations except with L-1.

It is clarified that the CVC’s instructions dated 18 Nov 98, banning post-tender negotiations except with L-1 (i.e., the lowest tenderer), pertain to the award of work/supply orders etc., where the Government or the Government Company has to make payment. If the tender is for sale of material by the Government or Government company, the post-tender negotiations are not be held except with H-1 (i.e., the highest tenderer), if required.

(CVC letter No 98/ORD/1 dated 03 rd Aug 2001)

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10.4 Tendering Process – Negotiation with L-1 A workshop was organized on 27th Jul 2005 at SCOPE New Delhi, by the Central Vigilance Commission, to discuss relating to tendering process including negotiation with L-1. Following the deliberations in the above mentioned Work Shop, the following issues are clarified with reference to para 2.4 of Circular No.8(1) (h)/98(1) dated 18th November, 1998 on negotiation with L-1, which reflect the broad consensus arrived at in the workshop.

(i) There should not be any negotiations. Negotiations if at all shall be an exception and only in the case of proprietary items or in the case of items with limited source of supply. Negotiations shall be held with L-1 only. Counter Offers tantamount to negotiations and should be tre ated at par with negotiation. (ii) Negotiations can be recommended in exceptional circumstances only after due application of mind and recording valid, logical reasons justifying negotiations. In case of inability to obtain the desired results by way of reduction in rates and negotiations prove infructuous, satisfactory explanations are required to be recorded by the Committee who recommended the negotiations. The Committee shall be responsible for lack of application of mind in case its negotiations have only unnecessarily delayed the award of work/contract.

2.2 Further, it has been observed by the Commission that at times the Competent Authority takes unduly long time to exercise the power of accepting the tender or negotiate or re-tender. Accordingly, the model time frame for according such approval to completion of the entire process of Award of tenders should not exceed one month from the date of submission of recommendations. In case the file has to be approved at the next higher level a maximum of 15 days may be added for clearance at each level. The overall time frame should be within the validity period of the tender/contract. 3.3 In case of L-1 backing out there should be re-tendering as per extant instructions.

( No.005/CRD/12 Dated 25 th Oct 2005) 10.5 Tendering process – negotiation with L1 Reference is invited to Commission’s instructions of even number dated 25.10.2005 on the above subject. A number of references have been received in the Commission, asking for clarification on issues pertaining to specific situations. 2. The Commission’s guidelines were framed with a view to ensuring fair and transparent purchase procedure in the organizations. The guidelines are quite clear and it is for the organizations to take appropriate decision, keeping these guidelines in view. In case they want to take action in deviation or modification of the guidelines, to suit their requirements, it is for them to do so by recording the reasons and obtaining the approval of the competent authority for the same. However, in no case, should there be any compromise to transparency, equity or fair treatment to all the participants in a tender.

(005/CRD/12 Dated the 3 rd Oct 2006)

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10.6 Tendering process – negotiations with L-1

Reference is invited to the Commission’s circulars of even number, dated 25.10.2005 and 3.10.2006, on the above cited subject. In supersession of the instructions contained therein, the following consolidated instructions are issued with immediate effect:-

i) As post tender negotiations could often be a source of corruption, it is directed that there should be no post-tender negotiations with L-1, except in certain exceptional situations. Such exceptional situations would include procurement of proprietary items, items with limited sources of supply and items where there is suspicion of a cartel formation. The justification and details of such negotiations should be duly recorded and documented without any loss of time. ii) In cases where a decision is taken to go for re-tendering due to the unreasonableness of the quoted rates, but the requirements are urgent and a re-tender for the entire requirement would delay the availability of the item, thus jeopardizing the essential operations, maintenance and safety, negotiations would be permitted with L-1 bidder(s) for the supply of a bare minimum quantity. The balance quantity should, however, be procured expeditiously through a re-tender, following the normal tendering process. (iii) Negotiations should not be allowed to be misused as a tool for bargaining with L-1 with dubious intentions or lead to delays in decision-making. Convincing reasons must be recorded by the authority recommending negotiations. Competent authority should exercise due diligence while accepting a tender or ordering negotiations or calling for a re-tender and a definite timeframe should be indicated so that the time taken for according requisite approvals for the entire process of award of tenders does not exceed one month from the date of submission of recommendations. In cases where the proposal is to be approved at higher levels, a maximum of 15 days should be assigned for clearance at each level. In no case should the overall timeframe exceed the validity period of the tender and it should be ensured that tenders are invariably finalized within their validity period. (iv) As regards the splitting of quantities, some authorized have expressed apprehension that pre-disclosing the distribution of quantities in the bid document may not be feasible, as the capacity of the L-1 firm may not be known in advance. It may be stated that if, after due processing, it is discovered that the quantity to be ordered is far more than what L-1 alone is capable of supplying and there was no prior decision to split the quantities, then the quantity being finally ordered should be distributed among the other bidders in a manner that is fair, transparent and equitable. It is essentially in cases where the authorized decide in advance to have more than one source of supply (due to critical or vital nature of the item) that the Commission insists on pre-disclosing the ratio of splitting the supply in the tender itself. This must be followed scrupulously. (v) Counter-offers to L-1, in order to arrive at an acceptable price, shall amount to negotiations. However, any counter-offer thereafter to L-2, L-3, etc., (at the rates accepted by L-1) in case of splitting of quantities, as pre-disclosed in the tender, shall not be deemed to be a negotiation.

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2. It is reiterated that in case L-1 backs-out, there should be a re-tender.

(No.005/CRD/012 Dated the 3 rd Mar 2007) 11. USE OF WEBSITE 11.1 Improving Vigilance Administration: Increasing Tra nsparency in

Procurement / Sale

The Commission is of the opinion that in order to bring about greater transparency in the procurement and tendering processes there is need for widest possible publicity. There are many instances in which allegations have been made regarding inadequate or no publicity and procurement officials not making available bid documents, application forms etc. in order to restrict competition.

2. Improving vigilance administration is possible only when system improvements are made to prevent the possibilities of corruption. In order to bring about greater transparency and curb the mal-practices mentioned above the Central Vigilance Commission in the exercise of the powers conferred on it under Section 8(1)(h) issues following instructions for compliance by all Government departments, PSUs, Banks and other agencies over which the Commission has jurisdiction. These instructions are with regard to all cases where open tender system is resorted to for procurement of goods and services or for auction / sale etc. of goods and services.

(i) In addition to the existing rules and practices regarding giving publicity of tenders through newspapers, trade journals and providing tender documents manually and through post etc. the complete bid documents along with application form shall be published on the web site of the organization. It shall be ensured by the concerned organization that the parties making use of this facility of web site are not asked to again obtain some other related documents from the department manually for purpose of participating in the tender process i.e. all documents up to date should remain available and shall be equally legally valid for participation in the tender process as manual documents obtained from the department through manual process.

(ii) The complete application form should be available on the web site for purposes of downloading and application made on such a form shall be considered valid for participating in the tender process.

(iii) The concerned organization must give its web site address in the advertisement / NIT published in the newspapers.

(iv) If the concerned organization wishes to charge for the application form downloaded from the computer then they may ask the bidding party to pay the amount by draft/cheques etc. at the time of submission of the application form and bid documents.

3. While the above directions must be fully complied with, efforts should be made by organizations to eventually switch over to the process of e procurement/e-sale wherever it is found to be feasible and practical. 4. The above directions are issued in super session of all previous instructions issued by the CVC on the subject of use of web-site for tendering purposes. These

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instructions shall take effect from 1st January, 2004 for all such organizations whose web-sites are already functional. All other organizations must ensure that this facility is provided before 1st April, 2004.

( 98/ORD/1 CVC dated18th Dec 2003)

11.2 Improving Vigilance Administration –Increasing tran sparency in

Procurement/sale

The Commission has issued a directive vide No. 98/ORD/1 dated 18th December 2003 wherein detailed instructions are issued regarding the use of web-site for tendering process. The objective is to improve vigilance administration by increasing transparency- The instructions were to take effect from 1st January 2004. It is noticed that many authorized whose web-sites are functional are still not putting their tenders on the web-site. The Commission has desired that CVOs should ensure compliance of the above directive. They should regularly pursue the Newspaper advertisements, the web-site of their authorized and in general keep track to ensure that the directives of the Commission on this subject are complied with. Further, the Commission has desired that the CVOs should indicate in their monthly report in the column pertaining to tender notices whether all the tenders have been put on the web-site, and if not, the reasons for non-compliance. The explanation of the concerned officers who are not complying with these directions should be called and further necessary action taken.

(No.98/ORD/1 Dated 9 th Feb 2004)

11.3 Improving Vigilance Administration –Increasing tran sparency in procurement/ tender Process – use of Website In CPWD, MCD, Civil Construction Division of Post & Telecom departments and in many other departments/organizations, there is system of short term tenders (by whatever name it is called in different organizations), wherein works below a particular value are undertaken without resorting to publicity as is required in the open tenders. This practice is understandable because of cost and time involved in organizing publicity through newspapers. In all such cases, notice can be put on the Web-Site of the department as it does not take any time compared to giving advertisements in the newspapers and it practically does not cost anything. This will benefit the department by bringing in transparency and reducing opportunities for abuse of power. This will also help the organizations by brining in more competition.

In view of the reasons given above, the Commission has decided that instructions

given in the Commission’s circular No. 98/ORD/1 dated 18.12.2003 for the use of web-site will also apply to all such works awarded by the department/PSEs/other organizations over which the Commission has jurisdiction.

( No.98/ORD/1 Dated 11 th Feb 2004)

11.4 Improving Vigilance Administration: Increasing Tran sparency and Cutting Delays by E-Payments and E-Receipt by Govt. Organizations etc.

The Commission has been receiving complaints about inordinate delays in making payments to the vendors and other suppliers to the Govt. organizations, Public Sector Undertakings etc. Similarly complaints are received about delays in getting refunds from taxation dept. and other departments. Apart from increasing the cost of

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procurement, the delays lead to opportunities for corruption. A number of measures are required to cut down on delays in making payments. One such step is resorting to mechanism of e-payments and e-receipts wherever such banking facilities exist.

In the last few years tremendous progress has been made by the banking sector in computerization including net-working of branches, making it possible to do e-banking by making use of facilities like electronic clearing system (ECS) and electronic fund transfer (EFT) etc. These facilities are available in most of the banks including the State Bank of India as well as in private banks. A large number of corporate including public sector undertakings are already making e-payments to vendors and employees instead of making payments by issue of cheques.

The Commission has been receiving complaints that delay is intentionally caused

with ulterior motives in the issue and dispatch of cheques in the accounts and finance wings of a large number of Govt. Organizations. As the e-payment facility is already available in the metros as well as practically in all the main urban centers of the country, in order to curb the above mentioned malpractices, the CVC in the exercise of powers conferred on it under Section 8(1) (h) issues following instructions for compliance by all govt. departments, PSUs, banks and other agencies over which the Commission has jurisdiction. The payment to all suppliers/ vendors, refunds of various nature, and other payments which the organizations routinely make shall be made through electronic payment mechanism at all centres where such facilities are available in the banks. Salary and other payments to the employees of the concerned organizations at such centres shall also be made through electronic clearing system (ECS) wherever such facilities exist.

As the organizations will have to collect bank account numbers from the vendor,

suppliers, employees and others who have interface of this nature with the Govt. organisations, the concerned organisations may plan to switch over to e-payment system in a phased manner starting with transactions with the major suppliers in the beginning or in whatever manner is found more convenient.

It is expected that in three months i.e. by 1st July, 2004, 50% of the payment transactions both in value terms as well as in terms of number of transactions shall be made through ECS/EFT mechanism instead of payment through cheques. The remaining 50% payment transactions at all centres where such facilities exist shall be made by 31st Dec. 2004.

These instructions are applicable to all the metro cities and other urban Centres where the banks provide ECS/EFT and similar other facilities.

The departments, PSUs, Banks etc. should also provide an enabling environment and facilities so that businessmen and other citizens can make payment of Govt. dues and payments to PSUs etc. electronically.

In addition to significantly reducing processing costs in preparation and dispatch of cheques, the above measures also reduce the risk of frauds by providing speed, efficiency and easier reconciliation of accounts.

(CVC circular No. 98/ORD/01 Dated 6 th Apr 2004)

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11.5 Improving Vigilance Administration: Increasing Tran sparency in Procurement /sale etc.

The Central Vigilance Commission has issued a directive on the above subject

vide its Order No.981ORD11 dated 18th Dec. 2003 making it mandatory to use web-site in all cases where open tender system is resorted to. These instructions have been further extended vide Office Order No.1012104 dated 11.2.2004 to tenders of short-term nature (by whatever name it is called in different organizations). Various organizations have been corresponding with the Commission seeking certain clarifications with regard to the above directives. The main issues pointed out by organizations are as follows: Issue 1 - Size of Tender Documents In cases of works/procurement of highly technical n ature, tender documents run into several volumes with large number of drawings and specifications sheets, etc. It may not be possible to place these documents on website. Clarification: These issues have been discussed with the technical experts and in their opinion; there is no technical and even practical difficulty in doing the same. These days almost all the organizations do their typing work on computers and not on manual typewriters. There is no significant additional effort involved in uploading the material typed on MS Word or any other word processing software on the website irrespective of the number of pages. The scanning of drawings is also a routine activity .Moreover if the volume and size of tender document is so large as to make it inconvenient for an intending tendering party to download it, they always have the option of obtaining the tender documents from the organization through traditional channels. The Commission has asked for putting tender documents on web-site in addition to whatever methods are being presently used. Issue 2 - Issues Connected with Data Security, Lega lity and Authenticity of Bid Document.

Certain organizations have expressed apprehensions regarding security of data, hacking of websites etc. They have also pointed out that certain bidding parties may alter the downloaded documents and submit their bids in such altered tender documents which may lead to legal complications. Clarification: This issue has been examined both from technical and legal angles. Technically a high level of data security can be provided in the websites. The provisions of digital signatures through Certifying Authority can be used to ensure that in case of any forgery or alteration in downloaded doc uments it is technically feasible to prove what the original document was. There are sufficient legal provisions under IT Act to ensure that e-business can be conducted using the web- site. A copy of the remarks given by NIC on this issue is enclosed herewith. Issue 3 - Some organizations have sought clarificat ion whether web site is also to be used for proprietary items or items which are so urced from OEMs (Original Equipment Manufacturers) and OESs (Original Equipme nt Suppliers). Clarification: It is clarified that Commission’s instructions are with regard to goods, services and works procured through open tender system, so these instruction do not apply to proprietary items and items which necessarily need to be procured through OEMs and OESs.

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Issue 4 – Do the instructions regarding ‘short term tenders’ given in the CVC Order No.98/ORD/1 dated 11 th Feb 2004 apply to limited tenders also? Clarification : In many organizations goods, services and works which as per laid down norms are to be procured/executed through open tender system many times due to urgency are done through short term tenders without resorting to wide publicity in newspapers because of time constraint. In all such cases short term tenders (by whatever name it is called) etc. should also be put on the website of the dept. as it does not involve any additional time or cost.

Regarding applicability of these instructions to limited tenders where the number

of suppliers/contractors is known to be small and as per the laid down norms limited tender system is to be resorted to through a system of approved/ registered vendors/contractors, the clarification are given below. Issue 5 - Some organizations have pointed out that they make their procurement or execute their work through a system of approved/ registered vendors and contractors and have sought clarification about the implications of CVC’s instructions in such procurements/contracts. Clarification: The Commission desires that in all such cases there should be wide publicity through the web site as well as through the other traditional channel sat regular intervals for registration of contractors/suppliers. All the required Proforma for registration, the pre-qualification criteria etc. should be always available on the web-site of the organization and it should be possible to download the same and apply to the organization. There should not be any entry barriers or long gaps in the registration of suppliers/contractors. The intervals on which publicity is to be given through website and traditional means can be decided by each organization based on their own requirements and developments in the market conditions. It is expected that it should be done at least once in a year for upgrading the list of registered vendors/contractors.

The concerned organization should give web based publicity for limited tenders

also except for items of minor value. If the organization desires to limit the access of the limited tender documents to only registered contractors/suppliers they can limit the access by issuing passwords to all registered contractors/suppliers. But it should be ensured that password access is given to all the registered contractors/suppliers and not denied to any of the registered suppliers. Any denial of password to a registered supplier/contractor will lead to presumption of malafide intention on the part of the tendering authority.

CENTRAL VIGILANCE COMMISSION

Technical note from National Informatics Center Solution for Hosting of Signed Documents

1. Integrity of Document : The documents should be digitally signed by the person submitting them. The web server to which the documents are submitted for hosting, should verify the signature before hosting each document.

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2. Secure Hosting : ‘HTTPS’ should be used for both uploading and downloading of documents to avoid alteration of documents over the network. 3. Digital Signing and submission : The documents submitted for hosting may be in PDF or MS-WORD format The document is digitally signed at the document submission end by a digital signing tool and by using a private key stored in a smart card. The detached (PKCS#7) signature file is generated. The document and the signature are uploaded to the server. The uploading procedure may be automated through a program. This involves development effort. The web server can verify the digital signatures programmatically when the files are uploaded. The files and their verified signatures are hosted for downloading by end users. This procedure will ensure that the signer is confident of what he/she is signing. The person involved in web hosting is sure that the documents are properly signed. The end users benefit that the document they are downloading is authentic and that the integrity of the document is maintained. 4. Download procedure :

a. The user verifies the digital signature of the document on the web site. b. User downloads both the documents and the signature. c. User can verify the signature of the documents by using any standards

Compliant Document Signing Tool which can verify a PKCS#7 detached by signature.

5. Certificate for Digital Signature :

a. The signature should be generated using a certificate issued by a Certification Authority (CA) trusted under Controller of Certifying Authorities (CCA). This is mandatory for legal validity of the digital signature. b. The end user should ensure that the certificate used for signing the document is issued by a trusted CA.

(No.98/0RD/1 Dated 2 nd Jul 2004) 11.6 Improving Vigilance Administration : Increasing Tr ansparency in

Procurement/Sale etc.-Use of Web Site The Central Vigilance Commission has issued a directive on the above subject

vide its order no. 98/ORD/1 dated 18th Dec 2003 making it mandatory to use web-site in all cases where open tender system is resorted to. These instructions have been further extended vide office order No. 10/2/04 dated 11.2.2004 to tenders of short-term nature (by whatever name it is called in different organizations). Some of the PSUs and other Govt. organizations dealing with defence and national security related subjects have sought clarification on the following issue: Issue : Items and works, which are of sensitive nature from the point of view of national security. It has been pointed out that in some cases the tender documents and specifications given therein are of highly sensitive nature and putting such information on the web site can have national security implications or is not in the national interest.

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Clarification : It needs to be clarified that instructions of the commission are with regard to open tenders only where organizations are already giving advertisements in newspapers thus it is presumed procurement or works are not of secret nature. However if still CMD/CEO of a PSU or head of an Ordnance factory or head of a sensitive organization in Defence, Atomic Energy or Space sectors or the concerned administrative ministries are of the opinion that will not be feasible to put detailed tender documents on the website keeping in view their sensitive nature from national security point of view or from the point of view of national interest, they may take the decision not to put those documents or even the tender notice on website. But in all such cases the decision must be taken at the level of CMD or head of a PSU, head of an ordnance factory and in other government organizations at a level to be decided by the concerned administrative ministry. The specific reasons for not putting an open tender on web site should be recorded in the concerned file.

(CVC circular No. 98/ORD/1 Dated 5 th Jul 2004)

11.7 Central Vigilance Commission’s Directives on Use of Website in Public

Tenders A copy of the guidelines on the above mentioned subject and further clarification in this regard are enclosed herewith for information and necessary action.

(No.98/ORD/1 Dated 13 th Jul 2004)

11.8 Improving Vigilance Administration: Increasing Tra nsparency In

Procurement / Sale Etc. – Use Of Web Site For Tende rs Containing Classified / Secret Documentation. The Central Vigilance Commission had issued a directive vide order No.

98/ORD/1 dt. 18.12.03 on the use of web site for publicizing open tenders pertaining to the procurement and / or auction / sale of goods and services. The directions included making the complete bid documents (along with drawings etc.) available on the web for the prospective bidders to down load and use for tender participation. Certain apprehensions have been received in the Commission regarding providing open web publicity to classified / secret documents. These classified / secret documents may include.

(i) Overall layouts of strategic installations like nuclear / atomic energy installations, refineries, power plants, research and defence installations etc.

(ii) Process schemes or process flow diagrams (e.g. for a refinery) which require prior approval of the process licensor before they are provided to the individual bidder.

(iii) Technology / design details which may be proprietary to a particular firm and require specific approval of the technology provide prior to making them available to the bidders.

2. The Commission has considered the representations and is of the view that for such open tenders which consist of documents of classified / secret nature, the organizations may go in for pre-qualification of the bidders in the first stage of the tender. Once the bidders are pre-qualified the complete tenders including the classified / secret

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documents which form a part of the tender may be made available to them for submitting their techno-commercial and price bids. The process of pre-qualification will involve publicizing the notice inviting tenders which could include the particulars of the tender along with the complete pre-qualification requirements. This notice inviting tender would follow all the procedures of publicity that are normally followed for open tenders including publicity on the web site. Once the suitability of the bidders has been assessed through the responses received against the pre-qualification notice, complete tenders will be issued to the pre-qualified bidders. The Organizations may adopt / follow their own procedures of maintaining secrecy of the classified / secret documents which form a part of these tenders. Thus only the select group of qualified bidders would be in possession of the classified / secret documentation. It may however be ensured that.

(i) Such procedure is followed only for the tenders which contain classified / secret documentation, after obtaining the approval of the competent authority for this purpose.

(ii) The NIT (having pre-qualification conditions) conforms to all extant

instructions / guidelines for ensuring a transparent tendering.

(iii) Adequate opportunity and time is given to the pre-qualified bidders to bid for the work. Once the bidders have been pre-qualified, no further rejection takes place on the grounds of not meeting the prequalification criteria, in the later stages of the tender.

3. The post pre-qualification process of the tender may involve separate technical and financial bids. The pre-qualified bidders may be issued tenders directly or through web. In order to limit the access to the detailed tender documents on the web site at this stage, a password access can be resorted to organizations who need to put the classified / secret documents in their procurement / work tenders must put defined tendering procedures in place for such tenders in consultation with the CVO of the Organization, prior to operating such pre-qualification procedure for tenders containing classified / secret documents.

(CVC circular No. 005/VGL/7 Dated 28 th Feb 2005) 11.9 Details On Award Of Tenders/Contracts Publishing O n Websites/Bulletins

The Commission vide its Circular No. 8 (1) (h)/98(1) dated 18.11.1998 had

directed that a practice must be adopted with immediate effect by all organizations within the purview of the CVC that they will publish on the notice board and in the organizations regular publications the details of all such cases regarding tenders or out of turn allotments or discretion exercised in favour of an employee/party. However, it has been observed by the Commission that some of the organizations are either not following the above mentioned practice or publishing the information with a lot of delay thereby defeating the purpose of this exercise viz. increasing transparency in administration and check on corruption induced decisions in such matters. 2. The Commission has desired that as follow up of its directive on use of “website in public tenders” all organizations must post a summary every month of all the contracts/purchases made above a certain threshold value to be decided by the CVO in consultation with the head of organization i.e. CEO/CMD etc. as per Annexure-I. The threshold value may be reported to the Commission for concurrence.

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3. Subsequently, the website should give the details on the following:

a) actual date of start of work b) actual date of completion c) reasons for delays if any

(CVC circular No. 005/VGL/4 Dated 16 th Mar 2005) 11.10 Details on Award of Tenders/Contracts Publishing o n Websites/Bulletins -

Reminder Regarding.

Reference is invited to Commission’s Office Order No.13/3/05 dated 16.3.2005 regarding above mentioned subject directing the organisations to publish every month the summary of contracts / purchases made above a threshold value on the website. In this regard it is specified that the proposed thres hold limit is acceptable to the Commission as long as it covers more than 60% of th e value of the transactions every month . This limit can be raised subsequently once the process stabilizes.

2. CVOs may, therefore, ensure that such details are posted on the website of the organisation immediately and compliance report in this regard should be sent by CVOs in their monthly report to the Commission.

(CVC circular No. 005/VGL/4 Dated 28 th July 2005)

11.11 Details On Award Of Tenders/Contracts Publishing O n Websites/Bulletins

It has been observed that despite Commission’s directions vide its circulars dated 16/3/05 and 28/7/05, a number of organisations are yet to give details of the tenders finalized on the website of their organisations. Some of the organisations have informed that this is due to the delay in receipt of information from their Regional/Subordinate Offices. 2. In this regard it is clarified that placing of such information on the website will be a continuous process. The CVOs should ensure publishing of the details of the tenders awarded immediately with available information and subsequently update it. The threshold limits as proposed by the CVOs in consultation with CEOs can be taken as the starting point, which could be revised subsequently to cover 60% of the transactions in a year and further 100% on stabilization.

(CVC circular No. 005/VGL/4 Dated 20 th Sep 2005) 11.12 Payment to Vendors / Contractors through Electronic Clearance System [ECS]

Presently, payments to inland vendors / contractors are being made through cheques. However, there is a need for adopting an efficient system bringing complete transparency in the dealings with the vendors / contractors and to avoid delay in receipt of payment by the vendors / contractors. 2. In view of the above, Divisions are requested to implement payment to Indian vendors / contractors through ECS where such facility has been made available by RBI. The ECS payment is effected through National Clearing Cell [NCC] managed by RBI or designated banks. The list of centres where ECS is available is placed. Payments to existing vendors / contractors in these centres may be made mandatory over a period of

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2-3 months. Some of the divisions are already using the ECS facility for salary remittances. 3. Payment through ECS can be arranged to those vendors / contractors who have an account with Bank branches participating in Electronic Clearing System through MICR cheques. Hence Divisions may insist on all Indian vendors / contractors located at ECS centres to open bank accounts with bank / branch with participate in electronic clearing to facilitate vendors / contractors getting early payments 4. Procedure:

a) Obtain approval of CFCs as per DOP 42(ii) for the list of officers of finance department who would be authorized to advise the sponsor bank [HAL’s operating bank] for ECS payment. Names of authorized signatories to be submitted by Divisions to CO from time to time

b) Communicate list of authorized signatories for ECS payment to the

sponsor bank

c) Apply to NCC [national clearing cell] for user code in the prescribed format [form E-1] through the sponsor bank [enclosed at E-2]

d) Payment to vendors / contractors may be classified under “Miscellaneous Payments” in the application

e) Obtain user code and necessary software from NCC f) Separate user code to be obtained for each sponsoring bank

g) Obtain consent from Indian vendors / contractors for accepting payment through ECS and obtain required particulars from them regarding account no. type of account, vendor’s branch and bank at per format at E-3

h) Identify a specific PC for ECS operation where the ECS software is loaded; PC should be password protected and access to the PC should be limited to authorized signatories.

i) Approval for payment to vendors / contractors is to be obtained as per existing DOP / accounts manual and laid down procedure j) Details of approved payments to vendors / contractors to be entered in the prescribed software with details of vendor’s / contractor’s account number, MICR number etc and copied to the floppy as per format at E-4. k) Hard copy of the data in floppy to be attached to the payment voucher duly approved and checksum as per the software to tally with voucher total l) Covering letter to the bank advising the ECS payment should be duly signed by authorized signatory [s]. Covering letter should specifically mention the total amount that is being advised to the Bank which should tally to voucher total. Hard copy of the data in the floppy also to be enclosed to covering letter

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m) Covering letter duly signed by authorized signatory to be issued to the vendor intimating the payment through ECS together with details of payment such as PO / Contract No., Invoice No., date of payment, amount etc n) Divisions to ensure that the debit by the Bank towards ECS payment matches to the amount advised to the Bank. o) In case of returns, reasons for the returns may be analysed for correction in vendor’s account no., MICR No. etc.

5. Further, Divisions may ensure the following;

i) Request for quotations issued to India vendors / contractors should necessarily provide a clause for acceptance of payment through ECS by the vendor.

ii) Payment terms of purchase order / contract should clearly mention that payments would be made only through ECS iii) All the existing vendors / contractors should be persuaded to accept ECS payment. Over a period of 2-3 months, payment to vendors / contractors through ECS to be made mandatory iv) In case of existing vendors / contractors who do not have account with MICR clearing branch may be persuaded to open account with bank / branches participating in MICR clearing v) Wherever Divisions are already having user code for salary payments, same user code could be used for vendor payment. However, separate advice to bank could be prepared so that specific value ceilings can be fixed separately for salary and vendor payments vi) The charges levied by sponsor bank is in line with bank wise charge as notified by RBI placed at E-5

6. Copy of the manual on ECS issued by RBI and frequently asked questions [FAQ] is enclosed herewith for ready reference. Divisions may report to CO the status of implementation of payment to vendors / contractors through ECS from time to time. First report regarding implementation of ECS by Divisions may be forwarded to CO by 25th April 2006

(No. FIN/C-12/BANKS/05-06; dated 15 th Mar 2006)

11.13 Bank Charges On Payments To Vendors

Reference is made to the circulars / instructions issued by CO regarding

applicability of Bank charges on payments to vendors. However, it is observed that divergent practices are followed among the Divisions with regard to incurrence of bank charges on payments made through LCs, collection of documents through banks and direct payments for both inland and foreign vendors.

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In view of the above, the following guidelines are reiterated for compliance:

a) Payments to foreign vendors

i) Payment through LCs

ii) Payment to foreign vendor by way of bills sent for collection through Bank

iii) Direct payment

b) Payment to Indian Vendors i) Payment of local LCs

ii) Payment to local vendor by way of bills sent for collection through Bank

iii) Direct payment

Divisions may ensure compliance of above guidelines, specific issues, if any relating to implementation of the above guidelines may be referred to Corporate Office for review.

(No. FIN/C-12/BANKS/05-06 dated 15 th Mar 2006) 11.14 Posting Of Details On Award Of Tenders/Contracts On Websites/Bulletins

The Commission, vide its orders of even number dated 16.3.2005, 28.7.2005 and 20.9.2005, had directed all authorized to post every month a summary of all contracts/purchases made above a certain threshold value on the websites of the concerned authorized and it was specified that the proposed threshold limits would be acceptable to the Commission as long as they covered more than 60% of the value of the transactions every month in the first instance, to be revised subsequently after the system stabilized. The threshold values as decided by the Competent Authority were also to be communicated to the Commission separately for its perusal and record. CVOs were required to monitor the progress in this regard and ensure that the requisite details were posted regularly on respective websites. They were also required to incorporate the compliance reports in this regard in their monthly reports. 2. The Commission has taken serious note that the aforementioned instructions are not being adhered to by the authorized. CVOs are, therefore, once again advised to ensure that details of the tenders awarded above the threshold value by the organizations are uploaded in time on the authorized official website and are updated every month. The position in this regard should be compulsorily reflected in the CVOs monthly reports to the Commission. CVOs should also specifically bring to the notice of the Commission, any violation of this order.

(005/VGL/4 Dated the 1 st Sep 2006)

11.15 Improving vigilance administration by leveraging t echnology: Increasing

transparency through effective use of websites in d ischarge of regulatory, enforcement and other functions of Govt. Authorized . The Commission has been receiving a large number of complaints about

inordinate delays and arbitrariness in the processing and issue of licenses, permissions, recognitions, various types of clearances, no objection certificates, etc., by various Govt.

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authorized Majority of these complaints pertain to delays and non-adherence to the ‘first-come-first-served’ principle. In a number of cases, there are complaints of ambiguities regarding the documents and information sought for the grant of such licenses, permissions, clearances, etc. There is also a tendency in some authorized to raise piece-meal/questionable queries on applications, often leading to the allegations of corruption. In order to reduce the scope for corruption, there is a need to bring about greater transparency and accountability in the discharge of regulatory, enforcement and other public dealings of the Govt. authorized

2. Improvement in vigilance administration can be possible only when systems improvements are made to prevent the possibilities of corruption. In order to achieve the desired transparency and curb the malpractices mentioned above, the Central Vigilance Commission, in exercise of the powers conferred on it under Section 8(1)(h) of the CVC Act, 2003, issues the following instructions for compliance by all Govt. departments authorized / agencies over which the Commission has jurisdiction:-

i) All Govt. authorized discharging regulatory/enforcement functions or service delivery of any kind, which cause interface with the general public/private businesses, etc., shall provide complete information on their websites regarding the laws, rules and procedures governing the issue of licenses, permissions, clearances, etc. An illustrative list is given in the annexure. Each Ministry should prepare an exhaustive list of such applications/matters and submit a copy of same to the Commission for record and web-monitoring. ii) All application forms/proformas should be made available on the websites in a downloadable form. If the authorized concerned wishes to charge for the application form downloaded from the computer, the same may be done at the time of the submission of the application forms. iii) All documents to be enclosed or information to be provided by the applicant should be clearly explained on the websites and should also form part of the application forms. iv) As far as possible, arrangements should be put in place so that immediately after the receipt of the application, the applicant is informed about the deficiencies, if any, in the documents/information submitted. v) Repeated queries in a piece-meal manner should be viewed as a misconduct having vigilance angle. vi) All authorized concerned should give adequate publicity about these facilities in the newspapers and such advertisements must give the website addresses of the authorized concerned.

3. In the second stage, the status of individual applications/matters should be made available on the authorized website and should be updated from time-to-time so that the applicants remain duly informed about the status of their applications. 4. In addition to the manual receipt of applications, all authorized should examine the feasibility of online receipt of applications and, wherever feasible, a timeframe for introducing the facility should be worked out. As a large number of Govt. authorized are opting for e-governance, they may consider integrating the above mentioned measures into their business processes so that duplication is avoided.

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5. Instructions at para-2 above shall take effect from 1st January, 2007, and instructions at para-3 shall become effective from 1st April, 2007. All Heads of Organisations/ Deptts. Are advised to get personally involved in the implementation of these important preventive vigilance measures. They should arrange close monitoring of the progress in order to ensure that the required information is placed on the website in a user-friendly manner before the expiry of the abovementioned deadlines. They should later ensure that the information is updated regularly.

Annexure

Illustrative list

1. Land & Building Related Issues

i) Applications for mutation; conversion from leasehold to freehold of lands & buildings; approval of building plans by municipal authorities and landowning/regulating agencies like MCD; DDA; NDMC; L&DO and similar agencies in other UTs. (ii) Application for registration deeds by Sub-Registrars/Registrars and other applications connected with land record management. (iii) Application for allotment of land/flats, etc., by urban development agencies like Delhi Development Authority.

2. Contracts & Procurement .

(i) Applications for registration of contractors/suppliers/ consultants/ vendors, etc. (ii) Status of all bill payments to contractors/suppliers, etc.

2. Transport Sector

Issue of driving licenses, registration of vehicles, fitness certificates, release of impounded vehicles etc. by RTAs. 4. Environment & Pollution Related Matters Issue of environment and pollution clearances for setting up industries and other projects by Min. of Environment & Forests; Pollution Control Organizations, etc. 5. Food & Hotel Industry Applications connected with clearances, licenses for food industry/hotels/ restaurants, etc. 6. Ministry of Labour/Ministry of Overseas Indian Affa irs .

(i) Applications by beneficiaries and employers in connection with EPFO; ESI etc.

(ii) Applications by recruiting/placement agencies and individuals submitted to Protectorate General of Emigrants and the concerned Ministry.

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(iii) Other applications connected with regulatory/enforcement systems of Labour Ministry.

7. CBDT & Income Tax Deptt .

(j) Application for PAN. (ii) Applications submitted by NGOs for exemption from Income Tax. (iii) Applications submitted for issue of certificates/income tax clearance for immigration/ public contracts or any other purposes. (iv) Application for appointment of legal counsels/any other professionals.

8. Customs & Central Excise & DGFT

Applications/cases of Duty Drawback & other export incentives.

9. Telecom (BSNL & MTNL)

Applications for establishing STD booths, etc.

10. Petroleum Sector

Applications for allotment of petrol pumps/gas stations.

11. Ministry of External Affairs

(i) Applications for issue of passports. (ii) Applications for issue of visas by Indian Embassies abroad.

12. Ministry of Home Affairs

(i) Applications submitted to FRRO. (ii) Applications connected with FCRA.

13. Ministry of Health

Applications for recognition by Medical Council of India and similar other

regulatory bodies. 14. Education

i) Applications for accreditation handled by bodies like AICTE & others. (ii) Applications for recognition of schools by Director of Education etc. (iii) Grant of E.C. by Director of Education.

15. Agriculture, Dairying & Fisheries

(i) Various clearances/licenses, e.g. Clearance for operating fishing vessels. (ii) Quarantine related applications.

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16. Ministry of Social Justice/Tribal Affairs .

Applications for sanction of funds to NGOs.

(No.006/VGL/117Dated the 22 nd Nov, 2006) 11.16 Details On Award Of Tenders/Contracts Publishing On Websites/Bulletins Reference is made to ED (V)’s Circular No HAL/CO/VIG/41/2005/1119 dt 16 Aug 2005 on the subject (copy enclosed for ready reference). 2. It is observed that requisite details of Contracts/Purchase Orders placed, as directed vide above Circular and Commission’s letter dated 16.3.2005 (also enclosed) are not being published on the Website. 3. You are directed to comply with the instructions and send the information in prescribed format to GM (MS&IT) at CO for updating on the Website with a copy to ED (V) for onward transmission to CVC. The information needs to be furnished every month. 4. It may be noted that Direct Project Materials as defined by Para 2.2 of Purchase Manual are to be excluded from the details to be published on Website.

(HAL/CD/616(F)/2006 dated 6th Dec 2006) 11.17 Improving Vigilance Administration By Leveraging Te chnology: Increasing

Transparency Through Effective Use Of Website.

Please refer to Commission’s Circular no. 40/11/06 dated 22/11/2006 on the aforementioned subject & also Circular No. 13/3/05 dated 16/03/2005 & Circular No. 46/7/05 dated 28/7/2005 regarding details of award of tenders/contracts publishing on Websites/Bulletin. 2. The Commission vide circulars dated 16/3/05 & 28/7/05 had directed all organizations to post on their web-sites a summary, every month, of all the contracts/purchases made above the threshold value covering at least 60% of the transactions every month. A compliance report in this regard was to be submitted to the Commission by the CVOs through their monthly report to the Commission. However, it is seen that some of the departments have neither intimated the Commission about the threshold value decided for posting the details of tenders awarded on the web-sites, nor a compliance report is being sent through the monthly reports. 3. Further, vide circular dated 22/11/06, the Commission while emphasizing the need to leverage technology, as an effective tool in vigilance administration, in discharge of regulatory, enforcement and other functions had directed the organizations to upload on their websites, information in respect of the rules and procedures governing the issue of licenses/permissions etc. and to make available all the application forms on the websites in a downloadable form besides, making available the status of individual application on the organization’s website. The Commission had directed the organizations to implement its guidelines in two phases. The first phase relating to the posting of all application forms on the website was to be implemented by 1/1/2007 and the second phase, by 1/4/2007. Although, the date for implementation of second phase

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has passed by, the departments are yet to intimate the Commission about the status of implementation of the two phases.

4. The Commission, therefore, while reiterating its aforementioned instructions directs the CVOs to convey to the Commission the following information latest by 30/4/07:-

a) The threshold value decided by the organization for publishing on their web-site, details of award of tenders/contracts;

b) The extent to which the details of awarded tenders are being posted on the

web-site and whether the web-sites are being updated regularly or not;

c) Whether first/second phase of the Commission’s circular dated 22/11/06 has been implemented or not;

d) If not, the reasons thereof: steps being taken by the organization to ensure

implementation of the Commission’s circular and the exact date by which both the phases as mentioned in the Commission’s circular would be fully implemented;.

(CVC circular No. 006/VGL/117 Dated 18 th Apr 2007)

11.18 Implementation Of E-Tendering Solutions References are being received by the Commission regarding the methodology for selection of sole application service provider for the implementation of e-tendering solutions in various organizations. The Commission has examined the matter and is of the view that all organizations should invariably follow a fair, transparent and open tendering procedure to select the application service provider for implementing their e-tendering solutions. The standard guidelines on tendering procedure should hold good for the procurement of these services as well

(009/VGL/002 dated 13 th Jan 2009)

11.19 Posting Of Details On Award Of Tenders/Contracts O n Websites.

The Commission vide circulars dated 16.03.2005, 28.07.2005 and 18.04.2007 had directed all organisations to post on their web-sites a summary, every month, containing details of all the contracts/purchases made above a threshold value (to be fixed by the organisations) covering at least 60% of the value of the transactions every month to start with on a continuous basis. CVOs were required to monitor the progress and ensure that the requisite details were posted regularly on respective websites, and also to incorporate compliance status in their monthly report to the Commission. 2. On a review of the status of implementation by the organisations, it is observed that some organisations have not adhered to the instructions and implemented the same. Further, such information being posted on the websites are not being regularly updated on a continuous basis by certain organizations and, in some cases, the information published is disjointed and not as per the prescribed format laid down by the Commission. It is also seen that a few organisations have placed such information on restricted access through passwords to registered vendors/suppliers etc. which defeats the basic purpose of increasing transparency in administration.

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3. The Commission, therefore, while reiterating its aforementioned instructions would direct all organisations/departments to strictly adheres and post summary of details of contracts/purchases awarded so as to cover 75% of the value of the transactions without any further delay. Any failure on the part of the organisations on this account would be viewed seriously by the Commission.

(CVC circular No. 005/VGL/4 Dated 14 th Jul 2009) 11.20 Implementation of e-tendering solutions. Guidelines were prescribed in this office OM of even number, dated 13/1/09 on the above-cited subject, advising organizations to follow a fair, transparent and open tendering procedure, to select the application service provider for implementing their e-tendering solutions. 2. It is clarified that while ensuring fair play, transparency and open tendering procedure for e-tendering solutions, the organizations must take due care to see that effective security provisions are made in the system to prevent any misuse. In this regard, the guidelines on security related issues in e-tendering systems are enclosed for information. Organizations concerned may follow these guidelines while implementing e-tendering solutions to contain the security related loop holes.

(Circular No 29/9/09 dated 17 th Sept 2009)

12. PROCESSING OF PROCUREMENT

12.1 Time bound processing of procurement The Commission has observed that at times the processing of tenders is inordinately

delayed which may result in time and cost overruns and also invite criticism from the Trade Sector. It is, therefore, essential that tenders are finalized and contracts are awarded in a time bound manner within original validity of the tender, without seeking further extension of validity. While a short validity periodicals for prompt finalization by observing specific time-line for processing, a longer validity period has the advantage of vendors loading their offers in anticipation of likely increase in costs during the period. Hence, it is important to fix the period of validity with utmost care. 2. The Commission would, therefore, advise the organizations concerned to fix a reasonable time for the bids to remain valid while issuing tender enquiries, keeping in view the complexity of the tender, time required for processing the tender and seeking the approval of the Competent Authority, etc., and to ensure the finalization of tender within the stipulated original validity. Any delay, which is not due to unforeseen circumstances, should be viewed seriously and prompt action should be initiated against those found responsible for non-performance. 3. Cases requiring extension of validity should be rare. And in the exceptional situations where the validity period is sought to be extended, it should be imperative to bring on record in real time, valid and logical grounds, justifying extension of the said validity.

(008VGLl083 Dated 6 th Nov 2008)

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12.2 Time Bound Processing Of Procurement Central Vigilance Commission has issued instructions on Time Bound Processing of Procurement vide Circular No 31/11/08 dt 06 Nov 2008 (copy enclosed for reference). 2. Specific reference is made to para-3 of the above circular which is reproduced below:

“Cases requiring extension of validity should be rare. And in the exceptional situations where the validity period is sought to be extended, it should be imperative to bring on record in real time, valid and logical grounds, justifying extension of the said validity”.

3. Divisions are required to take note of the same and ensure strict compliance with the above instruction.

(HAL/CD/617/2008 dated 05 th Dec 2008)

13. AWARD OF CONTRACT ON NOMINATION BASIS

13.1 Transparency in Works/Purchase/Consultancy contract s awarded on nomination basis

The Commission had, in it’s OM No. 06-03-02-CTE-34 dated 20.10.2003 on back

to back tie up by PSUs, desired that the practice of award of works to PSUs on nomination basis by Govt. of India/PSUs needed to be reviewed forthwith. It is observed that in a number of cases, Works/Purchase/Consultancy contracts are awarded on nomination basis. There is a need to bring greater transparency and accountability in award of such contracts. While open tendering is the most preferred mode of tendering, even in the case of limited tendering, the Commission has been insisting upon transparency in the preparation of panel. 2. In the circumstances, if sometimes award of contract on nomination basis by the PSUs become inevitable, the Commission strongly feels that the following points should be strictly observed.

(i) All works awarded on nomination basis should be brought to the notice of the Board of the respective PSUs for scrutiny and vetting post facto.

(ii) The reports relating to such awards will be submitted to the Board every

quarter.

(iii) The audit committee may be required to check at least 10% of such cases.

(No.005/CRD/19 Dated 9 th May 2006)

13.2 Transparency in Works / Purchase / Consultancy Cont racts awarded on

nomination basis . Reference is invited to the Commission’s circular No.15/5/06 (issued vide letter

No.005/CRD/19 dated 9.5.2006), wherein the need for award of contracts in a transparent and open manner has been emphasized.

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2. A perusal of the queries and references pertaining to this circular, received from various organizations, indicates that several of them believe that mere post-facto approval of the Board is sufficient to award a contracts on nomination basis rather than the inevitability of the situation, as emphasized in the circular. 3. It is needless to state that tendering process or public auction is a basic requirement for the award of contract by any Government agency as any other method, especially award of contract on nomination basis, would amount to a breach of Article 14 of the Constitution guaranteeing right to equality, which implies right to equality to all interested parties. 4. A relevant extract from the recent Supreme Court of India judgement in the case of Nagar Nigam, Meerut Vs A1 Faheem Meat Export Pvt. Ltd. [arising out of SLP(civil) No.10174 of 2006] is reproduced below to reinforce this point.

“The law is well-settled that contracts by the State, its corporations, instrumentalities and agencies must be normally granted through public auction/public tender by inviting tenders from eligible persons and the notifications of the public-auction or inviting tenders should be advertised in well known dailies having wide circulation in the locality with all relevant details such as date, time and place of auction, subject matter of auction, technical specifications, estimated cost, earnest money deposit, etc. The award of Government contracts through public-auction/public tender is to ensure transparency in the public procurement, to maximize economy and efficiency in Government procurement, to promote healthy competition among the tenderers, to provide for fair and equitable treatment of all tenderers, and to eliminate irregularities, interference and corrupt practices by the authorities concerned. This is required by Article 14 of the Constitution. However, in rare and exceptional cases, for instance, during natural calamities and emergencies declared by the Government; where the procurement is possible from a single source only; where the supplier or contractor has exclusive rights in respect of the goods or services and no reasonable alternative or substitute exists; where the auction was held on several dates but there were no bidders or the bids offered were too low, etc., this normal rule may be departed from and such contracts may be awarded through ‘private negotiations’.” (Copy of the full judgement is available on the web-site of the Hon’ble Supreme Court of India, i.e., www.supremecourtofindia.nic.in )

5. The Commission advises all CVOs to formally appraise their respective Boards/managements of the above observations as well as the full judgement of the Hon’ble Supreme Court for necessary observance. A confirmation of the action taken in this regard may be reflected in the CVO’s monthly report. 6. Further, all nomination/single tender contracts be posted on the website ex post-facto.

(No.005/CRD/19 Dated 5 th Jul 2007 )

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14. DELAY IN PAYMENT TO VENDORS

14.1 Improving Vigilance Administration: Increasing Tran sparency and cutting delays by E-payments and E-receipt by Govt. Organis ations etc.

The Commission has been receiving complaints about inordinate delays in making payments to the vendors and other suppliers to the Govt. organisations, Public Sector Undertakings etc. Similarly complaints are received about delays in getting refunds from taxation dept . and other departments. Apart from increasing the cost of procurement , the delays lead to opportunities for corruption . A number of measures are required to cut down on delays in making payments. One such step is resorting to mechanism of e-payments and e-receipts wherever such banking facilities exist. In the last few years tremendous progress has been made by the banking sector in computerization including net-working of branches, making it possible to do e-banking by making use of facilities like electronic clearing system (ECS) and electronic fund transfer (EFT) etc. These facilities are available in most of the banks including the State Bank of India as well as in private banks. A large number of corporate including public sector undertakings are already making e-payments to vendors and employees instead of making payments by issue of cheques. The Commission has been receiving complaints that delay is intentionally caused with ulterior motives in the issue and dispatch of cheques in the accounts and finance wings of a large number of Govt. Organisations. As the e-payment facility is already available in the metros as well as practically in all the main urban centres of the country, in order to curb the above mentioned malpractices, the CVC in the exercise of powers conferred on it under Section 8(1) (h) issue s following instructions for compliance by all govt. departments, PSUs, banks an d other agencies over which the Commission has jurisdiction.

1. The payment to all suppliers/vendors, refunds of variou s natures , and other payments which the organisations routinely make shall be made through electronic payment mechanism at all centres where s uch facilities are available in the banks. 2. Salary and other payments to the employees of the concerned organisations at such centers shall also be made through electronic clearing system (ECS) wherever such facilities exist.

As the organizations will have to collect bank account numbers from the vendor,

suppliers, employees and others who have interface of this nature with the Govt. organisations, the concerned organisations may plan to switch over to e-payment system in a phased manner starting with transaction s with the major suppliers in the beginning or in whatever manner is found more c onvenient. It is expected that in three months i.e. by 15t July, 2004, 50% of the payment transactions both in value terms as well as in terms of number of transactions shall be made through ECS/EFT mechanism instead of payment through cheques. The remaining 50% payment transactions at all centres where such facilities exist shall be made by 31st Dec 2004.

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These instructions are applicable to all the metro cities and other urban centres where the banks provide ECS/EFT and similar other facilities. The departments, PSUs, Banks etc. should also provide an enabling environment and facilities so that businessmen and other citizens can make payment of Govt. dues and payments to PSUs etc. electronically. In addition to significantly reducing processing costs in preparation and dispatch of cheques, the above measures also reduce the risk of frauds by providing speed, efficiency and easier reconciliation of accounts.

(No.98/ORD/1 Dated 6 th Apr 2004) 14.2 Delays in Payments to Contractors & Suppliers etc. – Reducing

opportunities for corruption

The Commission has observed that in a large number of Government organisations and PSUs, payments to contractors/suppliers are inordinately delayed. This makes the system vulnerable to corruption, in addition to increasing the cost of procurement by the Government agencies. 2. The Commission has therefore directed that all the CVOs should undertake a review of bills received during the last six months. The review is meant to primarily determine the time taken in clearing the bills. Necessary help from the concerned Finance/Administration departments may be taken wherever required. Wherever the systems have not yet been computerized there may be practical difficulties in conducting such a review for all the bills. The organisations may fix a cut off limit for review. It is suggested that the cut off limit for bills can be Rs.1 lakh i.e. time taken for payment of all bills above this amount should be seen. In smaller organisations the cut off limit can be lower depending on feasibility and convenience. 3. The CVOs should also review whether payments are being made on “first-come-first-serve” basis or not. 4. A compliance report in this regard may be sent to the Commission by 15.4.2005 as per the following details: Statement on Delays in Bill Payments 1. Name of Organisation 2. Cut off limit : Rs.1 lakh (in respect of small Organizations). 3. Bills received during Sept., 04-Feb 05 : (From contractors/suppliers etc) Total No. of Bills : Total amount involved : 4. Out of these :

(a) Bills paid in 15 days : No. of Bills : Amount Involved :

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(b) Bills paid in 15-30 days : No. of Bills : Amount Involved : (c) Bills paid in 30-60 days : No. of Bills : Amount Involved : (d) Bills paid from 60 days to 120 days : No. of Bills : Amount Involved : (e) Bills paid over 120 days : No. of Bills : Amount Involved :

5. There are also complaints that most of the organisations take inordinately long time in releasing 5% bills amount which is normally retained as Performance guarantee after it becomes due. CVO may do a similar exercise with regard to release of this payment. 6. Has any ERP system or any other computerized system been installed or accounting purposes which can monitor bill payment? 6A. If not, is there any plan to do so in near future? If so, please indicate the time frame.

(No.005/ORD/1 Dated 10 th Mar 2005) 15. COMMON IRREGULARITIES

15.1 Common Irregularities in the award of contracts

The CTE Organisation of the Central Vigilance Commission conducts independent intensive examinations of various types of works and contracts executed by the organizations under its purview. The lapses and deficiencies observed during the course of such examinations are brought to the noticed of the CVOs, for suitable corrective action. With a view to prevent recurrence of such lapses and irregularities and for improving the systems and procedures in the organizations, a few booklets have also been issued by the CTEO. However, it is observed that certain common deficiencies and irregularities continue to plague the/systems in a large number of organizations. Some of these, noticed during recent inspections are enumerated as under:

Appointment of consultants continues to be done in an arbitrary manner. At times two or even three consultants are appointed for a work with no clear cut and some times over lapping responsibilities. A PSU, in a recent case, in addition to the engineering and project management consultants appointed an ‘inspection and expediting’ consultant with no well defined role for them.

The tendency of over dependence on the consultants continues. All activities are left completely to the consultants. In a recent inspection of an Oil PSU, the tenders for a big work of about Rs.20 crores were issued on the basis of a single page estimate submitted by the consultants and the same was revised by the latter

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upwards by 20% after opening of price bids, in order to justify the quoted rates. A detailed and realistic estimate must be prepared before issue of tender.

Some organizations prefer limited tendering system, restricting competition to their approved contractors. The selection of these contractors at times is arbitrary and due to lack of competition or cartel formation amongst such group of contractors, the contracts are awarded at high rates. This need to be discouraged and the organizations must ensure that contracts are awarded on the basis of competitive bidding at reasonable rates. • The works are awarded without preparing any market rate justification. The

comparison at times is made with works which were awarded few years back. This procedure cannot be considered objective and appropriate for justifying the awarded rates. The justification should be based on realistic prevailing rates.

• In a recent inspection of an Oil PSU, it was noticed that revised price bids were

asked from all the bidders, as rates were high vis-à-vis the estimate. This tantamount to negotiations with firms other than L-1 and is a clear violation of CVC instructions in this regard. The negotiations should be an exception rather than a rule and should be conducted if required, only with the L-1 bidder.

• The organizations generally make provisions for a very small amount of say

Rs.50,000/- or R.1 lakh as earnest money. This amount is grossly insufficient to safeguard the organization’s interest in high rate tenders running into several crores of rupees. This needs to be revised to a sufficient amount.

• The post award amendments issued by the organizations, at times recommended

by consultants, without taking into account he financial implications favour the contractors. Such post award deviations without financial adjustments are unwarranted and against the principles of competitive tendering.

• The tender documents and the agreement are maintained in loose condition, are

not page numbered and not signed by bother parties. This is highly objectionable. In order to ensure that agreements are enforceable in court of law, it is imperative that the agreements are well bound, page numbered, signed by both the parties and well secured. This shall also prevent any possibility of interpolation and tampering of the documents.

• Loose & incomplete implementation of contract clauses pertaining to insurance,

Workmen’s Compensation Act, ESIC, Labour Licenses etc. has been noticed, which give undue financial benefit to the contractors.

• Time is the essence of any contract. It has been observed that at times the work

is extended and even payments released without a valid extension to the agreement. This has legal implications and in case of disputes, may jeopardize the interests of the organization. Timely extensions to the contracts and BGs if any must be ensured.

In order to make contract management more transparent and professional CVOs are requested to circulate this memorandum to the concerned officials in their organizations. This OM is also available in the Commission’s website

(OFF-1-CTE-1Dated 5 th Feb 2004)

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15.2 Examination of Public Procurement (Works / Purchas es / Services) Contracts by CVOs.

The Commission has been emphasizing the need for close scrutiny by the CVO, of the Public Procurement (Works/ Purchases/Services) Contracts of his department/organisation concerned, to ensure that the laid down systems and procedures are followed, there is total transparency in the award of contracts, and there is no misuse of power in decision making. 2. A number of booklets have been issued by the Chief Technical Examiner Organisation of the Commission, bringing out the common irregularities/ lapses noticed in different contracts. A Manual for Intensive Examination of Works/ Purchase Contracts and guidelines on tendering has also been issued. These are available in the Commission’s website. 3. The need for CTE type examinations by the CVOs has been emphasized in the Zonal meetings. The CVOs are required to reflect their examinations in the monthly reports. The Commission reiterates the importance of such examinations by the CVOs, as an effective preventive vigilance measure. 4. For this purpose, the CVOs are required to be well conversant with their organization’s works/purchase manual. Wherever works/purchase manuals are non-existent, they should be got prepared, particularly, in those organisations which have substantial procurement activities. CVOs should also ensure that the manuals are updated from time to time. They should check and ensure that the field staff is well conversant with the extant provisions of the manuals, and the guidelines issued by the Commission/CVOs from time to time. CVOs should have a full and active participation during the CTE inspections to know about the problem areas in the organization’s procurement process. 5. CVOs must also familiarize themselves with the earlier CTE examination reports and ensure that the lapses previously noticed are not repeated. If lessons are not learnt from the past, there would be need to take a serious view of the repetition of lapses and initiate disciplinary proceedings against the officials found responsible for repetition of the lapses committed previously. 6. On the basis of the lapses noticed by the Chief Technical Examiner’s Organisation over the years, a checklist has been prepared which could be used by the CVO while examining procurements contracts. The checklist may be seen in Annexure –1. If certain procurement contracts require an intensive examination by the CTEO, a reference may be made to them with adequate justification. Please Note :

As mentioned at para 2 above, the Booklets and the Manuals available on the

Commission’s website are as follows:-

I Problem Areas of Corruption in Construction (Prev entive Vigilance Publication) .

This is a preventive vigilance publication from CTE’s organization, CVC.

An attempt has been made to locate areas vulnerable to corruption in the construction industry from the experience gained by the CTE organization during

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intensive examination of works. The problems under various areas are explained with illustrations as far as possible. The aim of this booklet is to reduce corruption in the construction industry. The publication addresses the following:-

a) Administrative approval : Non-accordance of approval, Inflated provisions in the estimates, Major changes during execution of work, Funds allotted to one head incurred on another, Cost overrun due to delay in award of work, No check on the preliminary estimate prepared by consultants etc. b) Detailed Estimate and Technical Sanction: Non-preparation of Estimate, Non accordance of sanction for the estimate to ensure economy and structural soundness, Ambiguous nomenclature of items, Non-adherence to schedule rate of interests, Non-scheduled items without analysis etc. c) Consultancy: Appointment being done without proper publicity, Appointment from old panel, Award of contract at Adhoc rates, Appointment when in-house facility is available, No punitive action taken even though consultants fail to perform the required services as per terms of the contract etc. d) Preparation of Tender Documents: Issue of tender documents, prepared by consultants, without scrutiny and approval by the competent authority, Conflicting, vague and ambiguous provisions in the tender document, resulting in disputes, delays and financial losses, Ambiguous/stringent pre-qualifying criteria, ‘Rate only’ items are provided in the BoQ without giving quantity against item etc.

e) Inviting and Opening of Tenders: Restricting competition by not providing adequate time for publicity, Wide publicity not given in newspapers, Issue of tender documents to ineligible applicants, Non-maintenance of Sale and Opening of Tender Register etc. f) Tender Scrutiny and Award of Works: Acceptance of Certificates for satisfactory completion of work executed for private organizations without TDS certificate, Non – evaluation of conditions quoted by the tenders and accepting undue conditions during negotiations to give undue benefits to the contractor, Non- finalization of tenders within validity period, Ignorance of L-1 on non – satisfactory performance or other flimsy ground etc. g) Works Agreement: Unwanted papers in the agreement, Important papers such as negotiation letters missing, Performance guarantee obtained late, Non submission of Insurance policy or submission of policy for less period by the contractors, as per conditions, Bank Guarantee not verified through issuing bank etc.

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h) Payments to Contractors: Excessive deviations allowed without approval of competent authority, Less quantity of abnormally low rated items executed and paid, More quantity of AHR items executed and paid, Items substituted to the advantages of contractor, Inadmissible extra items paid etc. i) Site records: Registers with pages numbered serially not issued by the competent authority, Non-maintenance of Hindrance register, Non-maintenance of Site order book, Compliance in site order book is not recorded by Engineer – in – change, Non-maintenance of MAS A/c registers etc. j) Quality in Construction: Earth work, Concrete work, Brick work, Stone work, Wood work/Aluminum work, Steel work, Flooring, Roofing, Finishing, Horticulture works

II Common Irregularities / Lapses observed in Award and Execution of

Electrical, Mechanical and other Allied Contracts a nd Guidelines for Improvement thereof .

This is another publication from the CTE’s Organization of the CVC.

Several pitfalls and lapses that were observed during intensive examination of contracts and purchases are highlighted in this publication. The objective of this publication is to help improve the systems and procedures in the organization so that the project / contract management is more objective, transparent and professional. Keeping this perspective in view, this publication highlights lapses / irregularities in the award and execution of electrical, mechanical and other allied contracts being issued. The lapses have been explained and discussed with illustrations.

This publication comprises of two parts addressing the following:-

Part-I

a) Necessity and Justification of Works. b) Appointment of Consultants.

c) Pre-Qualification Criteria. d) NIT / Processing of Tender / Post Tender Negotiations. e) Reasonableness of Prices / Market Rate Justification. f) Award of Works and Signing of Contract Agreement. g) Advance Payment, Bank Guarantee / Performance Bank

Guarantee and Insurance. h) Completion schedule of Contracts. i) Defect Liability Period Clause. j) Payment Terms and applicability of Taxes & Duties. k) Post Contract Management.

Part-II: In this part, common irregularities observed in field / site inspection of following works, with illustration are given:-

1. Electrification Works (External & Internal) 2. Air-Conditioning Works 3. Lifts / Elevators

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4. Fire Detection and Fire Fighting systems. III. Common Irregularities / Lapses observed in Stores/P urchase Contracts and

Guidelines for Improvement in Procurement System .

Published in Jan 2002, the publication primarily deals with Common Irregularities / Lapses noticed by CTE in Stores/Purchase Contracts. Elaborate guidelines to improve procurement system of organizations have also been enumerated in the publication.

IV. Shortcomings of General Nature Observed during Inte nsive Examination of Works/Contracts.

The publication was brought out in Apr 2004, deals with irregularities

observed in Projects, Consultancy, Role of Consultant, Estimates, Award of Work, Post Award activities and Award of Contract Back-to-Back basis etc.

Annexure-1 Check list for examination of Procurement (Works/ P urchases/ Services) Contracts by CVOs A - Pre-Award Stage 1. Financial and Technical sanction of competent authority is available. 2. Adequate and wide publicity is given. Advertisement is posted on website and

tender documents are available for downloading. 3. Convenient tender receiving/opening time and address of the tender receiving

officials/tender box are properly notified. 4. In the case of limited tender, panel is prepared in a transparent manner clearly

publishing the eligibility criteria. The panel is updated regularly. 5. Pre-qualification criteria are properly defined/ notified. 6. Short listed firms/consultants are fulfilling the eligibility criteria. There is no

deviation from notified criteria during evaluation. 7. Experience certificates submitted have been duly verified. 8. Tenders/bids are opened in the presence of bidders. 9. Corrections/omissions/additions etc., in price bid are properly numbered and

attested and accounted page –wise. Tender summary note/ Tender opening register is scrupulously maintained.

10. Conditions having financial implications are not altered after opening of the price

bids. 11. In case of consultancy contracts

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(a) Upper ceiling limit is fixed for consultancy fee and (b) Separate rates for repetitive works are fixed.

B - Post-award stage (a) General

1. Agreement is complete with all relevant papers such as pre-bid conference minutes, etc.

2. Agreement is page-numbered, signed and sealed properly. 3. Bank Guarantee is verified from issuing bank. 4. Insurance policies, labour licence, performance guarantee are taken as

per contract. 5. Technical personnel are deployed as per contract. 6. Plant and equipment are deployed as per contract. 7. Action for levy of liquidated damages is taken in case of delay/default.

(b) Payments to contractors

1. Price escalation is paid only as per contract. 2. Retention Money/Security Deposit is deducted as per contract. 3. Recovery of Mobilization & Equipment advance is made as per the

provisions in the contract. 4. Recovery of Income Tax & Works Contract tax is made as per provisions

in the contract. 5. Glaring deviations are supported with adequate justification and are not

advantageous to the contractor. (c) Site Records

1. Proper system of recording and compliance of the instructions issued to the contractors is maintained.

2. Proper record of hindrances is maintained for the purpose of timely

removal of the hindrance and action for levy of liquidated damages. 3. Mandatory tests are carried out as per the frequency prescribed in the

Agreement. ( F.No.006/VGL/29 Dated 1 st May 2006)

16. REPORTS & RETURNS

16.1 Intensive Examination Of Supplies Of Engineering Ma terials To Central

Government Organisations The Central Vigilance Commissioner had desired that this Organisation should conduct Intensive Examinations of supplies of materials and Stores of Engineering materials in Central Government Organisations. For this purpose Quarterly Returns may be sent to this Organisation in the enclosed proforma. The return should include contracts for the supply of all Civil Engineering items for amounts Rs 15 lakhs and above and Electrical Engineering items for amounts of Rs 1

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lakh and above entered during the preceding 12 months. The returns for Civil and Electrical items shall be furnished on separate sheets. The Returns should be submitted quarterly for the quarters ending March, June, September and December by the 10th of the succeeding month. The receipt of this circular may please be acknowledged and the Returns for December 1985 may please be sent immediately.

( CVC letter NO 1K VGL 1 dated 14 th Mar 1986)

16.2 Examination Of Works By CTE’s Organization In CVC– Role Of CVOs Vis-à-

Vis CTEs The Chief Technical Examiner’s Organisation was created in 1957 in the then Ministry of Works, Housing and Supply for looking into the works being executed by the Central Vigilance Commission, the administrative control of this organization was transferred to the Commission on 1.11.1964. The jurisdiction of this organization in co-terminus with that of the Central Vigilance Commission. As such the works of all the Departments of the Government of India and all Union Territories as well as of the Central Public Sector Undertakings under their control can be examined by this organization. 2. Though the CTE’s Organisation can examine original repair works of any magnitude, yet considering its own limited resources it generally examines works of a larger size only. For this purpose, all the Chief Vigilance Officers of the Departments of the Government of India, Union Territories, Central Public Sector Undertakings, other autonomous and similar bodies are required to furnish to CVC quarterly returns, as per Commission’s letter No 1K VGL 1 dated 22.1.1981 in respect of civil works costing more than Rs 15 lakhs, electrical works costing more than Rs 1 lakh and horticulture works costing more than Rs 25,000 for the quarters ending March, June, September and December by the 15th day of the month following the quarter. The Chief Vigilance Officers should therefore, ensure that such returns are furnished to the CTE’s by the stipulated dates. There may be occasions when the Chief Vigilance Officers might come to know, from their own sources, about the alleged serious irregularities committed by certain public servants in the works. They are; therefore, free to recommend to CTE, while submitting the reports, examination of a particular work mainly from a vigilance angle. 3. Out of the returns furnished by the Chief Vigilance Officers, the Chief Technical Examiners select certain works for intensive examination and intimate these to the CVOs concerned for arranging necessary records, such as certified true copies of the contract documents and of latest running account bills paid to the contractors etc. When the programme of actual intensive examination of works is finalized by the CTE, intimation is given by the CTE to the CVO who is expected to make available all relevant documents and such other records as may be necessary, to the CTE’s team examining the works. 4. Action to be Taken on CTE’s Reports.

4.1 After intensive examination of a work is carried out by the CTE’s Organisation, an Inspection Report is sent to the Chief Vigilance Officer. The CVO should obtain comments of various officers at the site of work or in the office at appropriate level, on this inspection note. The comments should include:-

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(a) A statement regarding the correctness of facts stated in the report. If some of the facts are not correct, this should be clearly brought out and at the same time the correct facts, if different from the facts mentioned in the report, should also be indicated. (b) A detailed justification for the acts of commission or omission brought out in the report naïve his own comments on the explanations received from the concerned technical officers.

4.2 Replies to the observations and rejoinders of the CTE organization should be sent promptly as far as possible within three months from the date of dispatch of the Reports/Rejoinder. 4.3 The Chief Vigilance Officers should arrange to have similar and complete examinations done in cases where the examination done by the Chief Technical Examiner’s Organisation was only a representative one. He should thereafter act upon the findings of such examination and, where necessary, consult the CTE. 4.4 Arrangements should be made to get the defects, pointed out in the CTE’s Report, removed either by the Contractor or otherwise (at the risk and cost of the contractor), wherever feasible. 4.5 Minor irregularities brought out in the report should be got regularized by the competent authority after ascertaining the reasons for the same and after investigating into the bonafides in each case. Appropriate preventive measures may be taken for future and the defaulters suitably warned so that such irregularities do not recur. 4.6 The Chief Vigilance Officers should arrange to have recoveries effected in cases where overpayments are pointed out in the CTE’s Report and Recovery Statements should be supported by analysis of the rates at which recoveries have been effected. Such recoveries need not be postponed till the payment of the final bill. In case, there is any difficulty in making recovery of the full amount of over-payment pointed out by the CTE’s Organisation, the agreed amount of recovery should, at least, be effected from the next bill paid. 4.7 In cases where the work is treated as sub-standard in the CTE’s Report, the sanction of the competent technical authority for accepting such sub-standard works may be obtained, and the rates/payments suitably reduced. Before sanctioning such Reduced Rate Statements, the structural soundness and functional adequacy of the substandard work should be established. 4.8 In respect of the paras which are specifically referred to the CVO by the CTE for investigation from a vigilance angle, the CVOs should treat such a communication as a complaint. For the purpose of Investigation, the CVO should get an independent and reliable Engineer appointed to assist him in identifying and seizing the relevant records, preparing scrutiny notes thereon, fixing responsibilities, drafting Memos, calling for explanations of the indicted officials, and preparing scrutiny notes on the explanations received. Each lapse should be dealt with separately. After investigation, the case should be referred to the Commission for advice, along with a self-contained note and other relevant documents, as per para 5.13, Chapter I of the Vigilance Manual Volume (copy

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enclosed). Even if the CVO comes to the conclusion that no vigilance angle is involved, the matter has to be referred to the Commission for advice as the complaint has emanated from the Commission itself. 4.9 The CTE might suggest preventive measures in certain areas as a safeguard against malpractices or corrupt practices and to plug loopholes in the procedures, rules, regulations etc. In such cases, the CVO should arrange to have suitable directions issued by the Chief Executive/Head of the Department and furnish copies of such directions to the CTE’s Organisation. 4.10 In cases where the Consultants or the contractors or the suppliers have put the Organisation or the Department to a loss or have done grossly sub-standard work for which they have claimed full payment, the CTE will point out the need to take action against such an agency. The CVO should manage to take further action and keep the CTE informed about the action taken. 4.11 If a particular undertaking or the department does not have a Works Manual of its own, the CVO should take steps to have such a Manual prepared expeditiously to bring out clearly the financial powers delegated at various levels and the rules and guidelines for exercising such powers by various officers. Whenever any such Manual is brought out, a copy of the same should be furnished to the CTE’s Organisation indicating the date from which the provisions of the Manual will be effective. Until such a Manual is brought out, the Organisation may consider adopting Works Manual of an established Engineering Organisation like the MES, CPWD, and NBCC etc. 4.12 The CVO may consider obtaining assistance of technical officers from the concerned discipline, on a long term or permanent basis, for conducting detailed investigations and follow-up action.

(CVC letter No 7R ORD 37 dated 19 th Aug 1987) 16.3 Examination Of Works By The CTEs Organization – Rai sing The Monetary

Limit For Reporting The Works In Progress To The Ch ief Technical Examiners

Please refer to the Commission’s O.M. No IK-VGL-1, dated 19.7.1985 requiring submission of quarterly progress reports (QPRs) to the CTE Organisation in respect of civil works costing more than Rs 15 lakhs, Electrical works costing more than Rs 1 lakh & horticulture works costing more than Rs 25,000/-. 2. In view of the rise in the cost of indices for construction of buildings and the related materials, the Commission has been considering to raise the monetary limit of the works to be reported by the Organisations to the CTEs. It has now been decided that henceforth all the Organisations may include only those works in the returns to be submitted to the CTE Organisation, whose accepted tender value exceeds Rs 40 lakhs for civil works, Rs 3 lakhs for Electrical works and Rs 50,000/- for Horticulture works. The works whose accepted/tendered value is less than these limits need not be included in the returns. However, those Organisations who are undertaking such works but the monetary value of all such works is less than the fresh limits prescribed above may report two largest works in progress in each discipline (i.e. Civil, Electrical and Horticulture).

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3. While submitting the returns to the CTE Organisation, the following points may be kept in mind:-

(a) The cost of the work relates to the accepted/tendered value of the work and not the estimated cost. (b) If the work has been entrusted by one Ministry/Deptt/Undertaking of the Central Government to another Ministry/Department/undertaking of the Central Government for execution, it may be included in the return to be submitted by the executing organization. (c) The return should be submitted only in the prescribed form circulated vide Commission’s letter No IK-VGL-1, dated 19.7.85. A copy of the prescribed form is enclosed for ready reference. (d) The location of the work must be indicate. (e) Use of abbreviations which are not known to a common man should be avoided. (f) Mechanical (including air-conditioning), Electronics & Telecommunication engineering works may be treated as `Electrical works’ are marine works and other engineering works may be treated as `Civil works’ for the purpose of reporting to the CTE Organization. (g) The purchase of ready-built properties, materials and stores, if not purchased on DGS&D approved rates or at the rates approved by any other Government agency, may also be treated as works for the purpose of inclusion in the Quarterly Progress Reports. However, the cases in which the supplier via a Central Government Deptt or Central Government Undertakings need not be included. (h) The QPRs of stores being submitted separately as per Commission’s letter No IK-VGL-1 dated 14.3.86 may be discontinued. (i) Some of the Departments have set-up Civil Wings for execution of their civil works. While such Civil Wings submit QPRs with regard to the works being executed by them, the other works being executed through the contractors or any other agency are not being reported to the CTEs. Such works should also be reported to the CTE Organisation by the concerned departments. (j) All the works undertaken by the Organisations whether in India or outside India should be included in the QPRs. (k) QPRs should be sent to the CTE Organisation every quarter, even if the information is nil. (l) All works in progress, contracts awarded, and the works completed during quarter should be included in the QPRs. In respect of works completed during the relevant quarter, the actual date of completion should be indicated.

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(m) The QPRs in respect of civil works, Electrical Works & Horticulture works should be submitted on the separate sheet of paper so that it can be detached and given to the concerned TE.

(CVC letter No 9U –ORD-51 dated 24 th Sep 1990)

16.4 Examination Of Works By CTE’s Organization Raising The Monetary Limit

For Reporting The Works In Progress To The CTE REF: - Commission’s OM No 98-VGL-25 dated 20-10-98. In partial modification of office memorandum of even number, dated 20.10.98, para 2 may be read as follows:- “2. In view of the rise in the cost indices for construction of buildings and the related materials, the Commission has been considering to raise the monetary limit of the works to be reported by the Organisation to the CTEs. It has been decided that henceforth all the organizations may include only those works in the return to be submitted to the CTE’s organization whose accepted/tender value exceeds Rs 1 crore for civil works, Rs 15 lakhs for Electrical works and Rs 2 lakhs for Horticulture works. The works whose accepted/tendered value is less than these limits need not be included in the returns. However, those organizations who are undertaking such works but the monetary value of all such works is less than the fresh limits prescribed above may report two largest works in progress in each discipline i.e., Civil, Electrical and Horticulture.”

( CVC O.M. No 98-VGL-25 dated 18 th Nov 1998)

16.5 Examination Of Stores/Purchase Contracts By The CTE ’s Organization

It is observed by the Commission that many a time the irregularities brought out during the inspection of Chief Technical Examiners’ authorized of the Commission have been lost sight of and the same irregularities recurred in the subsequent works also. While reviewing the position it was considered desirable to have a works manual prepared and updated from time to time, suiting the requirement of the individual Organisation. Accordingly, it is advised that all PSUs/Organisations may prepare a works manual, if not done so far, within a time frame of 2-3 months and re[port compliance to the commission. In continuation of the above referred office memoranda, it has now been decided to examine the stores/purchase contracts entered into by the various Central Government Ministries/Departments, PSUs, Banks and U.Ts in addition to the works contracts being examined hitherto. It is, therefore, requested that all the organizations may forthwith send quarterly statements, with details of contracts valuing above Rs 2 crores in the enclosed proforma. The statements should be furnished by 10th of the month of the quarter starting from January. The first statement may be sent to the CTE’s Organisation by 10th April 1999. The scope of supply contracts (including imports) shall not only mean the value of materials/components but the installation and commissioning charges also, wherever applicable.

(CVC O.M. No 98-VGL-25(i) dated 12 th Mar 1999)

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16.6 Examination Of Works By CTE’s Organization For Repo rting The Works In Progress To The CTE’s Organization

Ref: This Organisation Office Memorandum of even number dated 20 Oct 98.

Amended vide Office Memorandum dated 18 Nov 98 and 98-VGL-25(I) dated 12 Mar 99.

The revised monetary limits for Civil, Electrical and Horticulture works was intimated vide Office Memorandum under reference. These revised monetary limit fixed was as under: (a) Civil Works - Rs 1.00 Crore (b) Electrical Works - Rs 15.00 lakhs.

(This should include Mechanical/ Electronics/Telecommunication and Other allied works).

c) Horticulture Works - Rs 2.00 lakhs It was also intimated vide office memoranda under reference that there is no need to include the details of works costing less than the monetary limit except for those organization under which cost of all the works is less than the monetary limits. Such organization may furnish the details of two largest works in progress in each discipline. It is observed that certain organizations are including details of works costing less than the monetary limit. The practice shall be stopped immediately and QPR be furnished as per monetary limits mentioned above. `Nil’ QPRs are also required to be submitted. QPRs in respect of Civil and Horticulture works shall be submitted separately in future with a separate forwarding letter to CTE (A) and QPR’s pertaining to Electrical/ Mechanical (including air-conditioning/Electronics and telecommunication works) and Stores purchase ;contracts above Rs 2 crores shall be separately addressed to CTE (J), CTEO/CVC for proper monitoring of QPRs.

Extract from Para 5.13 Chapter-I of Vigilance Manua l Volume-I

Communications meant for the Commission should ordinarily be sent to the Secretary, CVC by designation. If the communication is of a confidential nature or is in connection with an old reference, this should be addressed to the concerned officer of the Commission by name. While referring cases to the Commission, a self-contained note should be sent to the Commission clearly mentioning the facts of the case and the specific point(s) on which Commission’s advice is sought for. The self-contained note is meant to supplement and not to substitute the sending of the files and records. All relevant documents/files of the case should be sent along with the self-contained note. The note should invariably be accompanied by information relating to the officer involved in the case in the prescribed proforma.

(CVC O.M. No 98-VGL-25 dated 20 th Jul 2001)

16.7 Intensive Examination Of Works – Regarding Ref: Commission’s letter No. OFF-1-CTE-2 dated 2.11.2001 Please refer to the booklet “Intensive Examination of works (Guidelines)” enclosed with the above referred letter.

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As per Chapter-11 of the above booklet, the CVO is to carry out periodical inspection of works with the assistance of his technical staff in line with the CTE’s inspection. However, no report in this regard has been received. Now the CVC desires the following in this regard: a) The CVOs shall conduct inspection of works on the pattern of CTE’s Organization periodically. b) The result of such inspections should be sent to the CTEO along with the Quarterly Progress Reports, in the enclosed Proforma. c) The works should be inspected before the close of contracts, so that defects, if any, could be got rectified and the recoveries made wherever necessary.

STATEMENT SHOWING THE PERIODICALLY INSPECTION OF WO RKS

Name of work

Estimated Cost /

Tender Cost

Stipulated date of

start

Stipulated date of

completion

Name of

contractor

Progress at the time of

inspection

Date of

inspection

Details of

serious lapses

requiring detailed investiga

tion

Any other

comments by CVO

1 2 3 4 5 6 7 8 9 Please also refer:-

(a) Guidelines on Intensive Examination of Works .

This publication, published in Nov 2001, draws attention of officials

dealing with the works and also the CVO on various finer aspects to be looked into while conducting of Intensive Examination of Works. The publication contains exclusive procedures to be followed right from the selection of the work to its completion and also guidelines to conduct Intensive Examination of the same by CVO in line with CTE’s Procedure and submission of relevant reports.

b) Manual for Intensive Examination of Works/Purchase Contracts for

PSUs, Autonomous Bodies, Banks, Insurance Companies and Financial Institutions.

This publication, published in Jun 2004, facilitates conduct of CTE Type of Inspection by CVOs on CTE pattern is elaborated in the Manual with relevant appendices.

(No.OFF-1-CTE-2 Dated 22 nd Oct 2002)

16.8 Intensive Examination Of Works By CTE’s Organizatio n Submission Of

Quarterly Progress Report

Please refer to Commission’s OM No.98-VGL-25 dated 16.5.2005 wherein it was clarified that the consultancy contracts, all service contracts

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equipment & supplies of medicines to hospitals etc. are to be included in the QPRs being furnished to the CTE’s Organisation.

2. It was also enjoined upon all the CVOs to certify on the QPRs that all the works/purchase/consultancy and other contracts in progress as per the prescribed monetary limit have been included in the QPR.

3. It has been observed that many of the QPRs do not contain the consultancy contracts, service contracts and equipment & medicine purchase contracts and also the requisite certificates from the CVOs.

4. It is once again enjoined upon all the CVOs that the QPRs should contain all the ongoing contracts above prescribed financial limit, separately, for the below mentioned categories:-

Civil Rs.1.00 Crore and above Elect/Mech. Works Rs.30 Lakhs & above Store Purchase Rs.2 Crore and above Horticulture Rs.2 lakhs and above Medical equipment Rs.1 Crore & above Consultancy 2 largest value contracts. Service contracts 2 largest value contracts Supplies of medicines 4 largest value contract

5. In case authorized, which are undertaking such works in the areas mentioned above where the monetary value of all such works is less than the limits prescribed above, they may report 2 largest works in progress in each discipline. If the authorized is not undertaking any work under any particular discipline, a ‘Nil’ report should be furnished.

(98-VGL-25 Dated 11 th Nov 2005)

16.9 Submission Of Quarterly Progress Report In Respect Of Civil Work

Contracts, Electrical / Mechanical & Engineering Co ntracts, Store & Purchase Contracts, Horticulture Contracts, Purcha se Of Medical Equipments, Consultancy Contracts, Service Contrac ts And Supplies Of Medicines.

1. Enclosed please find herewith a copy of Circular received from CVC (CTE’s Org) vide its letter No.98-VGL-25 dated 11 Nov 2005, pertaining to the above subject. 2. The Quarterly Progress Report (QPR) is to be reported as per the following, Prescribed Monetary Limit only: (a) Civil - Rs.1.00 Crore & above. (b) Elec./Mechanical & Engg. - Rs.30 Lakhs & above c) Store/Purchase - Rs. 2.00 Crore & above. (d) Medical Equipment - Rs. 1.00 Crore & above. (e) Consultancy Contracts - Two Largest Value contracts (f) Service Contracts - Two Largest Value contracts (g) Supplies of Medicines - Four Largest Value contracts.

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3. In case, the Complexes/Divisions have not executed the contract for the above said limit, then it may be noted that any Two Largest Value of the contract executed (i.e. Civil, Electrical / Mechanical / Engineering, Store / Purchase and Medical Equipments) may be reported/reflected in the QPR’s. 4. It is also requested that the said QPR’s are to be duly filled as per the enclosed Format only and ensure that all columns are covered under it. 5. It is observed that Complexes/Divisions are mentioning the foreign currencies in the QPR’s (i.e. Dollars / Euros /Pounds etc) where the procurement and transactions with foreign vendors are done. The same to be converted into Indian Rupees and to be reported/reflected in the respective QPR’s. This decreases the time consumption, while compiling the reports, by this office. 6. The Heads of the Complexes/Divisions, are requested to advise their respective HoD’s of the concerned departments that, the above said QPR’s are submitted to the respective Vigilance Department HoD’s by every “20th day of the quarter ending month”, positively. This enables this office to compile the reports and for onward submission to the CVC (CTE’s Org) in time.

(HAL/CO/VIG/47/2006/268 dated 04 th Mar 2006)

16.10 Forwarding Of Certificate In Respect Of All CTE Qua rterly Progress Reports 1. Please refer this office letter No.HAL/CO/VIG/41/2005/1272 dated 19.12.2005, under which a policy letter No.98-VGL-25 dated 11.11.2005 was forwarded. 2. It is required to forward a certificate, certifying that the works/purchase/consultancy and other contracts in progress are as per the prescribed monetary limit for following reports sent by the HoDs: (a) Civil (b) Electrical./Mechanical Works c) Store Purchase (d) Horticulture (e) Medical Equipments (f) Consultancy (g) Service Contracts (h) Supplies of Medicines 3. The above certificate may please be forwarded by RETURN FAX. This may also be noted that, future QPRs are accompanied with the above certificate.

(HAL/CO/VIG/47/2008/08 dated 03 rd Jan 2008) 16.11 Deficiencies In Respect Of Quarterly Progress Repor ts (QPRs) Noticed By

The Chief Technical Examiner, CVC (CTE’s Organizati on), New Delhi. 1. Reference is made to the following letters, on the subject: (a) HAL/CO/VIG/47/2006/268, dated 04th March 2006.

(b) CVC’s (CTE’s Org) letter No.98-VGL-25, dated 11th Nov 2005.

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2. The Chief Technical Examiner, CVC (CTE’s Org) vide OFFICE MEMORANDUM No.98-VGL-25 dated 29th May 2009 (Copy enclosed for ready reference ) has brought to the notice of CVO, HAL that, certain deficiencies have been observed, while submitting the Quarterly Progress Reports (QPRs) by various Organizations. 3. The above matter was emphasized by CVO vide letter under reference as at Para-1 (a), above. It is once again reiterated that, the QPRs are duly filled in their respective formats only and also ensure that all the columns are covered, without any deficiencies, before submitting the QPRs to HODs of Vigilance Departments. 4. In connection with the O.M. No.98-VGL-25 dt.29th May 2009 of CTE, the Heads of Complexes/Divisions of HAL are requested to advise/issue directives to their respective HoDs of concerned Departments/Offices, to furnish QPRs with due care keeping in view of the deficiencies noticed by CTE.

( HAL/CO/VIG/64/2009/690 dated 25 th Jun 2009)

16.12 Intensive Examination By CVC (CTE’s Org) Of Horticu lture Works In HAL During the course of an “Intensive Examination carried out by CVC (CTE’s Org) in respect of “Horticulture Works Contract” awarded in one of the Divisions of HAL, the Technical Examiner (CTE’s Org), observed following lacunae/lapses awarded in the contract:-

(a) The method of weighing compost manure was not correct. The quality of compost should have been taken up in bags, so it could be measured by weight.

(b) The details of measurement (Plot wise) under Maintenance & Development of Lawn Area are not measured during award of contract to the agency.

(c) Signing the contract agreement and obtaining labour license in time was not incorporated in tender, while awarding the contract.

(d) The site records were not maintained properly. In this regard, concerned HODs of Complexes, Divisions & Offices may issue necessary instructions/directives to the concerned Officers of the Dept/Divisions to ensure that files/documents/records are page numbered / indexed / filed & maintained properly.

(e) Keeping in view of the necessity/durability and life of garden tools, the same needs to be purchased every year.

(i) In this regard, concerned HODs of Complexes, Divisions & Offices

may issue necessary instructions/directives to the concerned Officers of the Dept/Divisions.

f) As a part of preventive vigilance and also as per directions of the

Commission, necessary corrective measures may please be taken up and a circular be issued to the respective HoDs of Complexes/Divisions / Offices, to strictly adhere to the guidelines of CVC (CTE’s Org).

(HAL/CO/VIG/64-PC/2009/926 dated 10 th Aug 2009)

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16.13 Intensive Examination of CTE – Steps for early fina lization of pending vigilance references with CVOs

The Chief Technical Examiner’s Organization of the Commission conducts independent technical examination of various types of works/contracts/procurements awarded by the organizations, falling within the jurisdiction of the Commission. After intensive examination of the work is carried out by the CTE’s organization, an inspection report is sent to the CVO. The CVO is required to obtain comments of various officers of the organization at appropriate levels and furnish the same to the CTE along with CVOs comments thereon. In cases, wherein the organization is required to investigate and submit a report/reference to the Commission. 2. On a review of the pending CTE paras referred for vigilance investigation to the various CVOs, the Commission observes that a large number of references are pending for submission of reports with the CVOs inordinately. Another factor which contributes to the delay is absence of clarity and also incomplete/inconclusive reports/references made by CVOs. In order to sort out the long pending paras referred for vigilance investigation with the organizations and to appreciate the perceived vigilance angle in such references of CTE, the CVOs of the organizations may consider arranging interactive discussions with the CTE either at Delhi or during the visit of CTE at various stations for guidance in the matter of preparing vigilance investigation reports. .

(Circular No 13/6/09 dated 11th Aug 2009) 17. MISCELLANEOUS 17.1 Examination Of Works By The CTE Organization – Full Co-operation To Be

Extended In order to conduct an independent and effective examination of civil and other works from the vigilance angle, the CTE’s Organisation has been functioning in the Commission since Nov 1964. The main function of this organization is to offer technical advice on the civil and other construction works being executed by the Central Government Departments/ Undertakings etc and to carry out vigilance oriented inspections of works undertaken by such organizations. The jurisdiction of this organization is co-terminus with that of the CVC.

In order to enable the CTE Organisation to carry out its functions effectively, it is necessary that full cooperation is extended to them by arranging necessary records such as certified true copies of the contract documents, latest running account bills paid to the contractors and other relevant documents/records as may be necessary. Further in order to enable them to concentrate on those civil works which had been carried out under the supervision of the officers appearing on the “agreed lists”, a copy of the “agreed list”, when desired by the CTE Organisation may also be supplied to them.

(CVC O.M. No 5T DSP 18 dated 02 nd Jun 1989) 17.2 Procurement Against Proprietary Certificate During the course of System Audit it has been observed that:

- The procurements are made as “Proprietary” without recording reasons for such classification;

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- Items initially proposed for proprietary procurement are subsequently

tendered out at the purchase order stage; - Certain branded products are procured without any proprietary/

standardization certificate. 2. To streamline the procedure and to ensure uniformity, following guidelines may be followed while procuring materials certified as proprietary (a) Proprietary certificate is to be approved only when:

i) No equivalent or near equivalent is available from any other source.

ii) An item made or marketed by a firm having the exclusive right to

market the product. (iii) Procurement of a product from a vendor when the product is

exclusively developed for HAL by that vendor (with or without NRC).

(iv) Procurement of spares from OEM. (v) Requirement of a particular branded product among the class of

products available for ensuring standardization. (b) Proprietary certificate is to be approved by GM in cases where the

purchase proposal is to be approved by MD/CH and by a suitable senior officer who has been nominated for this purpose by GM for the proposals requiring GM’s approval.

(c) Proprietary certificate should invariably state the sub-clause under which

(para (a) above) the procurement is proposed for and the reasons for resorting to such proprietary procurement is to be recorded in the certificate itself. For example, if the item is certified under a(ii) above, certificate obtained from the vendor for having such exclusive right may be enclosed with the certificate. If the requirement is classified under a(iii), reasons for preference to particular brand among the brands available may be recorded with the concurrence of the indenting department.

(d) For procurement of branded product as a matter of policy, enquiry should

be sent to the manufacturer to get the price advantage as well as to ensure good quality and assured delivery in time.

(e) If MPR is raised for procurement of proprietary item (including branded

products), Proprietary certificate is to be attached along with the MPR. (f) Procurement from customer nominated single source need not be

classified as proprietary and is to be dealt as per the existing DOP (Annexure III(13).

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(g) Approval for procurement under proprietary certificate is to be accorded as per the Delegation of Powers (Annexure III-11(d)).

(h) As per Corporate Officer Circular No HAL/CSV/HO/23 dated 13 Jul

85(See Appendix below), a register is to be maintained giving full details for purchase made as per proprietary item.

(SYA/GENL/99-00/10/240 dated 19 th May 2000)

17.3 Mentioning Of Name- Designation & Date By Signatori es On Note Sheets

And Documents/Correspondences 1. Vigilance Staff are carrying out the inspections and checks as per the action plan drawn for Anti corruption work and preventive vigilance by the Vigilance department of Corporate Office. The HOD and the staff of Vigilance dept. in the Divisions/Complexes during their Vigilance inspections are experiencing difficulties in verifying the particulars of the signatories on note sheets/letters of correspondence etc. This is causing avoidable delay in speedy investigations, resulting in wastage of the time of concern author., and their personnel who are required to confirm the name of signatories. At times ignorance is expressed by the Dept/employees to identify the signatures of originator of Note sheet / papers/documents with intention to delay in investigation. All concerned in all the Depts of the Company may please be advised to follow the procedure given below with immediate effect:-

(a) In the Note sheets, the signatories should invariably write their name, designation and date very clearly in hand/stamp.

(b) In the letter/documents of normal correspondence the signatories should put the date and their stamp, which indicates name, designation and dept.

c) The above will facilitate in verification of signatures and save valuable time of the Company. It will also help in determining the time of movement of files/correspondence, which can be analysed, and steps taken to speed up the movement of files between the departments in Divisions/complexes and avoid possibility of losses of the same in transit.

( HAL/CO/VIG/47/2000/804 dated 24 th Aug 2000)

17.4 Material Issued To Sub-Contractor During the course of System Audit, certain shortcomings were noticed in respect of materials issued to Sub-Contractors. 2. To avoid such situations and to safeguard HAL’s interest, it is suggested that the following measures may be taken:-

(a) The estimated percentage of scrap and rejection should be indicated in the tender itself to ensure like to like comparison of the offers and the same is to be incorporated in the contract. (b) If the value of material issued to the sub-contractor exceeds Rs 5.00 lakhs, Bank Guarantee (BG) to the extent of the value of material supplied is to be obtained (instead of indemnity bond) with a validity of at least 30 days more

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than the agreed delivery date. The additional 30 days is to facilitate encashment of the BG, if the sub-contractor fails to deliver the material by the scheduled date. 30 days would need to be provided in case of extensions also. c) Anticipated date of supply of material by HAL may also be indicated in the contract for identifying source of delay at a later date. (d) Material should be supplied to the sub-contractor only after the receipt of indemnity bond/Bank Guarantee. (e) The contract should provide for the return of scrap/rejected material. If the contractor does not return the same, proportionate recovery is to be effected.

( SYA/GENL/99-00/009/241 dated 19 th May 2001)

17.5 Consideration Of Indian Agents The Commission has received a complaint alleging that in Government tenders at times an Indian Agent participates on behalf of two different foreign suppliers and in the event of only offers of these two suppliers getting short-listed, then the Indian representative knowing the prices of the two foreign suppliers/ manufacturers may take an undue advantage. 2. The issue has been deliberated in the Commission. In order to maintain sanctity of the tender system, it is advised that one Agent cannot represent two suppliers or quote on their behalf in a particular tender. 3. It is suggested that these instructions may be circulated amongst concerned officials of your organization for guidance.

(12-02-6-CTE/SPI (I)-2 dated 07 th Jan 2003)

17.6 Consideration of Indian Agents The Commission has received a complaint alleging that in Government tenders an agent participates by representing a company officially and another bid is submitted as a ‘direct offer’ from the manufacturer. At times, the agent represents a foreign company in one particular tender and in another tender the said foreign company participates directly and the agent represents another foreign company. There is a possibility of cartelization in such cases and thus award of contract at higher prices. 2. The issue has been deliberated in the Commission. In order to maintain the sanctity of tendering system, it is advised that the purchases should preferably be made directly from the manufacturers. Either the Indian Agent on behalf of the foreign principal or the foreign principal directly could bid in a tender but not both. Further, in cases where an agent participates in a tender on behalf of one manufacturer, he should not be allowed to quote on behalf of another manufacturer along with the first manufacturer in a subsequent / parallel tender for the same item. 3. It is suggested that these guidelines may be circulated amongst the concerned officials of your organization for guidance.

(Office Order No. 25/04/04 dated 21 st Apr 2004)

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17.7 Sources For Purchase Of Aeronautical Products And M aterials From Russia And Other Ex CIS Countries

Reference is made to various materials management circulars identifying some of the approved sources for purchase of Russian Military Purpose Products. In view of the continuous process of identifying enterprises by the Russian Federal Agencies, authorized to conduct independent export business, based on criterion determined by the Federation, following guidelines are issued concerning procurement from sources across Russian Federation as well as other Ex-CIS countries: Category 1 : Aircraft Components, ready made articles & spares specific to Aircraft, Aero Engines and other Accessories of Russian origin and Overhaul of the same, are to be sourced from:

• Russian Government approved Agencies, dealing in products & services required by Hal, as per the lists circulated by the Russian Govt. from time to time.

• M/s IRAL, Nasik, subject to items being sourced/ got overhauled by M/s IRAL from Government approved sources from Russia.

Category 2 : Aircraft components, ready-made articles & spares specific to Aircraft, Aero Engines, other Accessories of Ex-CIS countries origin and Overhaul of the same, are to be sourced from:

• Respective Government approved Agencies, dealing in products & services required by HAL, as per the lists circulated by the Govt. from time to time.

• M/s IRAL, Nasik, subject to items being sourced/ got overhauled by M/s IRAL from Government approved sources from Ex-CIS Countries.

Category 3: Other Goods like Raw Materials, Castings & Forgings, Consumables and items of General Industrial Applications (GIA) etc may be procured from Govt. approved sources of Russian/ Ex-CIS Countries having a valid relevant export licence, as per laid down commercial procedures. 2. Quality: It will be ensured, that procurement takes due care of Quality requirements and that necessary certifications/ approval of Airworthiness Authority are available. Trace-ability of materials shall also be ensured. 3. A “Directory of Approved Sources for Purchases of Aeronautical Military Purpose Products from Russia and other Ex-CIS Countries”, listing sources approved as of date, is placed at Annex – 1. In case the Divisions need to procure items from additional sources, the details of such Govt. approved sources together with copies of the Govt. approval documents will be forwarded to Corporate Office, with the concerned Director’s recommendation for obtaining chairman’s approval. Based on approvals granted, the Directory shall be updated on quarterly basis and forwarded to the Divisions.

(Circular No 29 dated 7 th Oct 2004) 17.8 Insurance Policies

Vide commercial circular No. 10; dated March 1979, approved pattern was laid

down for various types of insurance policies to be taken, risks to be covered and types of assets and value for which insurance need to be taken by the Divisions.

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The broad guidelines of above circular are reiterated below with clarifications i) Fire risk policy ii) Transit risk policy iii) Ground & Flight risk insurance iv) Insured value

Following may be ensured for finalization of insurance policies

a) The commercial procedure laid down is to be strictly followed for calling the quotations

b) RFQ is to be issued to all Insurance agencies approved by IRDA c) Confidentially of the rates offered by various firms should be ensured by

the following tender box system d) Receipt of FAX / E-mail quotations to be discouraged completely as far as

insurance policies are concerned. Action as envisaged vide HAL/CD/701-A/2000/1480; dated 10th May 2000 to be followed only in exceptional circumstances of emergency with the prior approval of GM of the Division

(No. FIN/C-12/INS/05-06; dated 14 th Mar 2006)

17.9 The Directory Of Approved Sources Of Aeronautical M ilitary Purpose

Products From Russia - Amendment No 2 The “Directory of approved sources for Purchase of Aeronautical Military Purpose Products from Russia and other Ex-CIS Countries” is hereby amended to Issue-3 to include the name of M/s Kharkov Machinery Plant “PED” Kharkov (a state enterprise of Ukraine Govt.), Ukraine and M/s Aviazapchast, Russia at Sl No 9 and 10 respectively. 2. Further, under the “Products” column against IRAL at Sl No 7, the entry has been amended to as follows”

“Russian Origin Raw Material, spares, components, aggregates and overhaul of aggregates subject to the items being sourced/got overhauled from Govt approved sources or OEMs from Russia and other CIS-Countries having Passport or Label with OTK or BTK or Plant Number Stamp”.

3. The revised “Directory” issue 3 is enclosed herewith. The procedure and other contents of the Material Management Circular, except above, remain unaltered. 4. This supersedes letter of even reference dated 13 Jun 2007 issued earlier.

(HAL/CD/617/2007 dated 26 th Jul 2007) 17.10 Revision Of Purchase Manual The present Purchase Manual was issued in the year 1985. Subsequently, certain Circulars have been issued to incorporate the various Guidelines of MoD, DPE, CVC, etc.

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2. The revision of Purchase Manual was felt due to change in the business scenario, vast number of guidelines issued by the MoD, DPE and CVC etc. Accordingly, the existing Purchase Manual was studied and a draft revised Purchase Manual prepared and circulated to all the Division/Complex including the CVO for their suggestions/recommendations. 3. The revised Purchase Manual has been put up to the Management Committee and the same has been approved. It may be mentioned here that a separate chapter has been included with CVC guidelines and circulars references issued upto 05 Jul 2007. 4. We are enclosing herewith 10 sets of Purchase Manual. It is requested that copy of the Purchase Manual may be sent to CVC for their information.

(HAL/DF/PM/MISC/07-08 dated 25th Jan 2008) 17.11 Measures To Curb The Menace Of Counterfeit And Refu rbished IT Products

With the increasing use of IT to leverage technology, a large number of

Government organizations are either upgrading or in the process of procurement of new computer hardware and software. It is often difficult to know the difference between PC made of “Genuine Parts ” and that made of “Counterfeit Parts ”. It may also be the case often that while various authorized order and pay for brand new equipment, they end up getting an inferior PC with counterfeit and second hand/refurbished parts disguised as new in new/ original cabinets to various customers designated as consignees by the ordering agencies at the headquarters of these organizations who are ignorant or have little or no technical knowledge in the matter.

In effect, this amounts to the authorized not getting what they actually ordered and paid for. The supplies of such PC in the long run would defeat the very purpose of going for a new system. COUNTERFEITING is designed to cheat naive consumers/ organizations.

This current circular is intended to help/ inform and enable due diligence as well

as curbing the menace of counterfeit and refurbished IT products disguised as new. As a first step, there is a need for all buyers in the Government Departments/ PSU to insist on a signed undertaking (sample format enclosed) from some authority not lower than the Company Secretary of the system OEM that would certify that all the components/parts/assembly/software used in the Desktops and Servers like Hard disk, Monitors, Memory etc were original/new components/parts/assembly/software, and that no refurbished/duplicate/ second hand components /parts / assembly / software were being used or would be used, so that the buying organizations were not cheated and get the original equipments as ordered by them. Also one could ask for ‘Factory Sealed Boxes’ with System OEM seal to ensure that the contents have not been changed en route.

Following advisory checkpoints it is hoped shall help identify the fraudulent practices that have come to notice and help guard against spurious and refurbished/duplicate/second hand components/parts/ assembly / software being received by purchasers and consignees who receive such goods and may not have much technical knowledge.

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1. CPU. Buyers are cautioned against buying IT Hardware with remarked CPUs that are freely / readily available in the market today. Entry Level processors get Remarked / Over clocked and sold as high end processors. These CPUs, come disguised as higher clock speed processors (e.g. a Celeron CPU can be remarked as a P4 CPU) while their real clock speed may be lower. Since Operating System is loaded from CD bundled with Motherboard, the CD contains image of configured OS. Hence information as seen in ‘My Computer’ – ‘System Properties’ shall give deceptive information. In other words, a Celeron CPU remarked as a P4 CPU, shall be seen as a P4 CPU only. Buyers should therefore, use various tool / utilities like the ‘CPU-Z’ Utility or the ‘sSpecNo .’ For ascertaining the real parameters of the CPU. Utility like CPU-Z (approximately 1.3 MB size) are available free on the web. 2. Hard Disk IT Hardware with refurbished Hard Disks that are actually 2nd hand / repaired hard disks are readily available at low cost. In hard disk drives, the factory repaired hard disk drives, which are mainly used in the warranty replacements are substituted in the new machines. Same is the case observed with floppy drive and Optical disk drives many times. Most of the competent hard disk makers use a sticker on such hard disks sold by them that clearly distinguishes such hard disks from the fresh ones. For example, manufacturer ‘Seagate’ marks Green Border and label of “Certified Repaired HDD” to distinguish such disk drives from New Genuine HDD. There is No border or Refurbished label on genuine new HDD. In addition to this, buyers may also use HDTUNE_210 Utility. This utility shall return Hard Disk Manufacturers’ Serial no. and Date of manufacturing of the Hard Disk. These parameters can be used to cross-verify with the hard disk vendor. Various Hard Disk vendors also put a date code on the hard disk. A mismatch between this date and the one returned by HDTUNE_210 Utility can also be viewed as tampering with the actual information of the hard disk. 3. Monitors . IT Hardware with refurbished Monitors that are actually 2nd hand / repaired monitors are given a “new look” by changing the body, with internal components remaining “old / repaired”. These CRT monitors are usually discarded from developed countries like US and Europe. There are also B Grade (New but Low Quality) CRT Monitors used in place of new monitors. Many times these can be distinguished by opening the cabinet body and noticing that the label on the tube does not carry various certifications and there are scratch marks on the tube. While ‘Genuine’ Picture Tubes have all mandatory Certifications, ‘Counterfeit’ Picture Tubes would not have these certifications. Certification gives an assurance of Reliability. Further many such cathode ray tubes (Picture Tubes) are found to need extra magnets to achieve focusing and earthing also is missing. Genuine Monitors rely on ‘Yoke Coil’ alone to focus electronic beam. Counterfeit Monitors typically require Numerous Magnetic Strips in addition to Yoke Coil to focus electronic beam. Further, ‘Earthing’ and ‘Shielding’ provide ESD (Electro Static Discharge) protection. Genuine Picture Tubes have proper “Earthing and Shielding”. Earthing and Shielding is compromised in counterfeit Picture Tubes to reduce cost. In ‘B’ Grade LCD Monitors, panels used are B grade in which the number of spots may be higher, response time & brightness of lower specs than what is stated. Above monitors are all available at low cost. The “Signed Undertaking ” as suggested shall serve as a deterrent and as a safeguard to ensure that bidders are not fleecing them by supplying such monitors.

a) Operating System. Purchasers should check the IT Hardware supplied (randomly selected IT Hardware) for Certificate of Authenticity (COA) pasted on the PC for product serial number and OEM’s / Supplier’s name to be printed on it. In Operating systems, pirated OS software with fake Certificates of Authenticity are used by some suppliers to cut costs. They look as good as the real ones. In

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PCs, counterfeiters buy legitimate software and copy the box design and packaging. Using sophisticated and expensive copiers, many copies of illegal CDs are created in a day. Purchasers should guard against buying IT Hardware with pirated copies of Operating Systems. Such Operating Systems, though, available at low prices, do not have the updated patches and security features that help safeguarding the PC and also improve its lifespan. Purchasers, therefore, may use the standard testing procedures (randomly on randomly selected IT Hardware) available on the following URL for ascertaining the in authenticity of the operating system installed on their PC:

http://www.microsoft.com/resources/howtotell/ww/windows/default.mspx.

4. Microsoft provides an inbuilt tool to diagnose the “Genuineness of its Operating System”. One could go to ‘My Documents’, and ‘Help’, from where one shall get step by step instructions to find out whether the windows installed is genuine.

http://www.microsoft.com/resources/howtotell/ww/windows/default.mspx 5. Mechanical Keyboards : Fake mechanical keyboards that are partially mechanical, with only the key plunger being that of a real mechanical keyboard and rest of the keyboard features remaining the same as those of membrane keyboard are being passed on as true mechanical keyboards. While these keyboards are available at low prices, they do not offer the robustness and long key-stroke life expected of a real mechanical keyboard. Real Mechanical Keyboards are expected to have Keystroke life of 50 Million as against 10 million for Membrane and Semi-Mechanical Keyboards. In case of bulk orders, it is recommended to physically examine a few keyboards for their construct to ascertain the genuineness of their being real mechanical keyboards. 6. Low Quality Memory Module – Memory chips are remarked or downgraded wafers are plastic packed under unknown brands or remarked with names of well known brands. Such memory modules have lower performance levels. It is better to go in for proven reputed brands such as Kingston, Transcend, Corsair, Samsung and Hynix to name a few available in the market. 7. Fraudulently Marked SMPS – In power supplies, wrong marking of the wattage is done. The power supplies do not carry all required certifications. While ‘Genuine’ Power supplies carry all mandatory certifications, in counterfeit Power supplies these certifications shall be found missing. Further Short circuit & over voltage protection circuitry could be missing in counterfeit Power Supply to reduce cost. 8. Counterfeited Consumables – Counterfeited consumables such as printer cartridges etc are used which are refilled with ink of poor quality leading to poor performance and clogging, smudging in printers etc. It is advisable to buy such consumables from OEM authorized suppliers or distributors to ensure quality and longevity of the printer equipment. Annexure: Model Undertaking of Authenticity form

(007/CRD/008 Dated 15 th Feb 2008)

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17.12 IT Procurement

Minutes of the above seminar were circulated vide letter no 3/CTE (2)-VR/2007 dated 3.10.2007. It has come to the notice of the Commission that despite specific instructions / guidelines and booklets issued by the Commission from time to time, and the holding of an exclusive seminar referred to above for the benefit of the Bank’s executives dealing with IT procurements along with respective CVO’s, Bank officials do not appear to adhere to these instructions / guidelines as expected of them, which leaves room for various irregularities. As such Commission desires that you organize seminars/workshops and lecture classes at frequent intervals to keep the officials of the bank, particularly those dealing with procurement activities educated and updated regarding procurement procedures, CVC guidelines. Instances have also come to the notice of the Commission indicating that a number of bank officials lack basic skills in computer operations and knowledge of the banking software. There is also a tendency on the part of senior officers to disclose their password to junior officials / staff for operating the system on their behalf, citing reasons, including work pressure and ignorance which you would appreciate is not acceptable. Therefore, there is an urgent need to impart proper training to such officers and staff at various levels particularly those working in the branches so that they have up-to-date knowledge of the computer system for day to day operations and are not dependent on their colleagues. You are, accordingly, advised to arrange such programmes for training on an on going basis for the benefit of bank officials. Please note to keep the Commission apprised of the steps taken in this regard and the progress so achieved.

(008/VGL/016 Dated 18 th Feb 2008)

17.13 Guidelines On Financial Concurrence

In continuation of the guidelines “on obtaining the financial concurrence prior to CFA approval” issued vide letter No. DF/100/28/07-08; dated 27-11-07, it has been decided that the fact of according the financial concurrence will have to be explicitly quoted in all the approvals to facilitate traceability / verification before release of payments. In this regard, it is suggested that a Financial Concurrence Number [FCN] along with a circular seal may be endorsed on all the approvals after the financial concurrence. Following procedures needs to be adopted;

I. All proposals other than the placement of purchase orders will have to be endorsed with Financial Concurrence Number and seal

II. The FCN is a running serial number with the date which will be

incorporated in a circular seal by the Finance Department

III. The number is centrally allocated by the office of the Head of the Finance Department after registering the particulars of financial concurrence in a separate register

IV. Registration of a case for endorsing the FCN could be made with the

following details: a) FCN No. b) Originator c) File reference d) Brief description of the case

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e) DOP f) Concurring Authority g) CFA h) Estimated value V. No. FCN will be allotted with confirmation of the availability of the budget

and without quoting DOP reference VI. Any approval obtained without the FCN will not be auctioned for payment

unless regularized. A report on all such cases of regularization will have to be rendered to the Complex Head of Finance. The originator will be responsibility for obtaining the financial concurrence.

(DE/100-28/08; dated 23 rd May 2008)

17.14 Referring Cases Of Procurement To The Commission

The Commission has noted a significant rise in the number of references made to

it involving procurement at different stages. These relate to specific cases and are not generic in nature. Essentially they belong to the domain of managerial decision making and the matter needs to be decided at that level. The Central Vigilance Commission and its Chief Vigilance Officers, as a matter of policy do not interfere in the process of decision making, which is a management function of the respective organization.

The Commission has issued various circulars/guidelines /instructions in order to

promote transparency, improve competition and ensure equity among participants. However, if any organization faces difficulty in the application of any of the circulars/guidelines/instructions issued by the Commission, then it may approach the Commission bringing out the difficulties along with a proposed generic solution listing out the ingredients of the special circumstances for examination and review by the Commission. References of a general nature having elements of managerial decision making and concerning a particular procurement should be avoided.

(No.008 /CRD/008 Dated 24 th Jul 2008)